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85–407 PDF 2013

S. HRG. 113–104 

TRANSBOUNDARY HYDROCARBON RESERVOIRS 

HEARING 

BEFORE THE

COMMITTEE ON 

ENERGY AND NATURAL RESOURCES 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

TO

CONSIDER THE FOLLOWING LEGISLATION: S. 812, A BILL TO AUTHORIZE THE SECRETARY OF THE INTERIOR TO TAKE ACTIONS TO IMPLEMENT THE AGREEMENT BETWEEN THE UNITED STATES OF AMERICA 

AND THE UNITED MEXICAN STATES CONCERNING TRANSBOUNDARY 

HYDROCARBON RESERVOIRS IN THE GULF OF MEXICO; AND H.R. 

1613, A BILL TO AMEND THE OUTER CONTINENTAL SHELF LANDS 

ACT TO PROVIDE FOR THE PROPER FEDERAL MANAGEMENT AND 

OVERSIGHT OF TRANSBOUNDARY HYDROCARBON RESERVOIRS, AND 

FOR OTHER PURPOSES 

OCTOBER 1, 2013 

( 

Printed for the use of the 

Committee on Energy and Natural Resources 

(II) 

COMMITTEE ON ENERGY AND NATURAL RESOURCES 

RON WYDEN, Oregon, Chairman 

TIM JOHNSON, South Dakota 

MARY L. LANDRIEU, Louisiana 

MARIA CANTWELL, Washington 

BERNARD SANDERS, Vermont 

DEBBIE STABENOW, Michigan 

MARK UDALL, Colorado 

AL FRANKEN, Minnesota 

JOE MANCHIN, III, West Virginia 

BRIAN SCHATZ, Hawaii 

MARTIN HEINRICH, New Mexico 

TAMMY BALDWIN, Wisconsin 

LISA MURKOWSKI, Alaska 

JOHN BARRASSO, Wyoming 

JAMES E. RISCH, Idaho 

MIKE LEE, Utah 

DEAN HELLER, Nevada 

JEFF FLAKE, Arizona 

TIM SCOTT, South Carolina 

LAMAR ALEXANDER, Tennessee 

ROB PORTMAN, Ohio 

JOHN HOEVEN, North Dakota 

JOSHUA SHEINKMAN, Staff Director 

SAM E. FOWLER, Chief Counsel 

KAREN K. BILLUPS, Republican Staff Director 

PATRICK J. MCCORMICK III, Republican Chief Counsel 

(III) 

C O N T E N T S 

STATEMENTS 

Page 

Beaudreau, Tommy P., Acting Assistant Secretary, Land and Minerals Management, Department of the Interior ................................................................. 9 

Landrieu, Hon. Mary L., U.S. Senator From Louisiana ....................................... 4 

Milito, Erik, Group Director, Upstream and Industry Operations, American 

Petroleum Institute .............................................................................................. 27 

Murkowski, Hon. Lisa, U.S. Senator From Alaska ............................................... 3 

Pascual, Carlos, Special Envoy and Coordinator, International Energy Affairs, 

Department of State ............................................................................................ 5 

Savitz, Jacqueline, Vice President, U.S. Oceans, Oceana .................................... 21 

Schatz, Hon. Brian, U.S. Senator From Hawaii ................................................... 2 

Wyden, Hon. Ron, U.S. Senator From Oregon ...................................................... 1 

APPENDIX 

Responses to additional questions .......................................................................... 35 

(1) 

TRANSBOUNDARY HYDROCARBON 

RESERVOIRS 

TUESDAY, OCTOBER 1, 2013 

U.S. SENATE, COMMITTEE ON ENERGY AND NATURAL RESOURCES, Washington, DC. 

The committee met, pursuant to notice, at 9:57 a.m. in room SD– 

366, Dirksen Senate Office Building, Hon. Ron Wyden, chairman, 

presiding. 

OPENING STATEMENT OF HON. RON WYDEN, U.S. SENATOR 

FROM OREGON 

The CHAIRMAN. The committee will come to order. 

The purpose of today’s hearing is to consider legislation to implement the U.S./Mexico Transboundary Hydrocarbon Agreement. I 

want to thank our witnesses, first of all, for appearing today. 

For the first time in over half a century, the U.S. and Mexico are 

entering into a robust energy partnership between our 2 countries. 

Hopefully this momentum will extend to other areas of trade, investment, and mutual cooperation, renewing the North American 

Alliance and strengthening our economy. 

The Transboundary Hydrocarbon Agreement will provide a way 

for the United States and Mexico to pursue the joint development 

of shared energy resources. This agreement resolves claims to a 

dispute area in the Gulf of Mexico so that the energy resources can 

be developed and the benefits can be shared by both Nations. 

On a recent visit to Mexico, our Vice President, Vice President 

Biden, spoke of the need for a stronger Western Hemisphere and 

the special role that North America is going to play, particularly 

the partnership between the United States and Mexico. Vice President Biden said and I quote, ‘‘We are grounded in a common border, common culture, common values, common dreams and common 

potential.’’ 

In that view that’s why we’re here today to review legislation to 

implement the U.S./Mexico Transboundary Agreement. 

Our country and Mexico have been working since the 1970s to 

provide a joint legal framework for shared resources. Such an 

agreement will help to grow our domestic energy supplies, ensure 

responsible resource management, strong environmental protection; 

and mutual assurance of regulatory and safety standards. I’m of 

the view that this agreement accomplishes that. 

The agreement encourages joint development of shared reservoirs 

and individual development by U.S. and Mexican companies. Further, the agreement gives legal certainty to U.S. companies to exVerDate Nov 24 2008 15:12 Jan 08, 2014 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 G:\DOCS\85407.TXT WANDA
2 

plore joint ventures with Mexico’s national oil company, requires 

joint safety inspection teams. and calls for the adoption of common 

safety and environmental standards. 

The agreement is going to make nearly 1.5 million acres of the 

Western Gap of the Outer Continental Shelf available. The Bureau 

of Ocean Energy Management estimates that these areas could 

contain up to 172 million barrels of oil and 304 billion cubic feet 

of natural gas, making our country less dependent on foreign 

sources of oil and gas. 

The Mexican government has acted quickly to fulfill their obligation to enact the agreement by ratifying it on April 12, 2012 and 

signing it into law that year. In addition to approving the agreement the Mexican government, under the leadership of President 

Pen ̃ a Nieto, has gone a step further undertaking domestic energy 

reform by proposing constitutional changes for the first time since 

1960. The proposed reforms would work to strengthen Mexico’s energy sector by boosting investment and production. 

It’s the hope that through this agreement and the proposed energy reforms in Mexico that the energy revolution in the United 

States is now experiencing can be extended throughout the Western Hemisphere. This would make our region more competitive and 

less reliant on politically tumultuous States for obtaining energy. 

Before concluding I’d like to take a moment to thank the Department of the Interior, the Department of State, the Mexican Embassy and all staff for diligent work and professionalism that made 

it possible for the committee to write S. 812 and in putting together 

today’s hearing. The legislation that we’re considering, if not signed 

into law before mid January, the moratorium in the Western Gap 

of the Gulf of Mexico expires. That could result in the damaging 

and loss of shared resources. That is why the committee feels it’s 

important to move quickly. 

It’s also my hope that we will not only be able to quickly move, 

but also pass clean legislation to approve this time sensitive agreement and not get bogged down in matters that simply are not relevant to the agreement. What’s important to keep in mind is the 

importance of the agreement and continue to work with Mexico to 

ensure a strong partnership and then begin the important work of 

integrating and creating a strong North American energy economy. 

What we’re going to do is Senator Murkowski has some remarks. 

Senator Landrieu is on a tight schedule. 

So with our witnesses? Indulgence we’ll hear from Senator Murkowski and Senator Landrieu and then we’re very happy to hear 

from our witnesses. 

Senator Murkowski. 

[The prepared statement of Senator Schatz follows:] 

PREPARED STATEMENT OF HON. BRIAN SCHATZ, U.S. SENATOR FROM HAWAII

‘‘Chairman Wyden and Ranking Member Murkowski, thank you for holding this 

hearing. This agreement between the United States and Mexico is an important one, 

and I am glad both the House and the Senate are moving forward to act on it. 

I would like to highlight one major difference between the bills introduced by the 

House and the Senate. Included in the House bill, but not the Senate bill, is an exemption for U.S. oil and gas companies operating in trans-boundary areas from the 

requirement to disclose payments made to foreign governments for the development 

of oil, gas or other minerals. This requirement is also known as section 1504 of the 

3 

Dodd-Frank Act, and has strong support from transparency advocates and the 

White House. 

I have serious concerns about this exemption, which applies to all trans-boundary 

areas in the world, not just the one in question today. 

Other members share my reservations, and for good reason. 

About two-thirds of the world’s poorest people live in resource rich countries. The 

agreements made between these governments and companies, often extractive industries, suffer from a severe lack of transparency, which has at times enabled 

large-scale government corruption, and allowed companies to operate without proper 

public oversight. 

Simple reporting requirements, as required under Section 1504 of Dodd-Frank, 

can help to increase transparency and decrease corruption. Including an exemption 

from these common-sense rules in a trans-boundary agreement such as the one before us today is unnecessary and counterproductive. 

I look forward to hearing the testimonies today and hope the witnesses can shed 

some light on this issue.’’ 

STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR 

FROM ALASKA 

Senator MURKOWSKI. Thank you, Mr. Chairman and appreciate 

you scheduling this hearing on legislation pending before the committee to approve and implement the U.S./Mexico Transboundary 

Agreement. 

I also want to thank our very distinguished witnesses for being 

here today. Look forward to the perspectives that you will share. 

I view this agreement as an important step toward greater North 

American energy security. The Congressional Research Service 

says that the U.S. and Canada are ‘‘joined at the well’’ when it 

comes to energy. I believe that we should strive for the same relationship with Mexico. 

Though we are strong trading partners and tied economically. 

More cooperation and integration is necessary to reach this goal. 

Energy is already flowing between our 2 countries. Though crude 

oil production in Mexico continues to decline, Mexico remains one 

of the top exporters of crude oil to the U.S. We are Mexico’s largest 

supplier of petroleum products. We’re also sending increasing volumes of natural gas by pipeline to Mexico. So approval of the 

Transboundary Agreement will allow this relationship to continue 

and to grow. 

The agreement lifts the moratorium on oil and gas leasing in the 

Western Gap and provides legal certainty for development along 

the entire Transboundary area. This will open access to over a million new acres on the Outer Continental Shelf, hundreds of millions 

of barrels of oil, billions of cubic feet of natural gas and lead to new 

jobs and new revenues. 

The agreement also encourages the promotion of common safety 

and environmental standards though each country retains authority over activity within their respective waters. 

Both of the bills authorize the Secretary of the Interior to approve unitization agreements to develop oil and gas resources in 

the Transboundary area, disclose information necessary to implement the agreement and manage development and to participate in 

and implement dispute settlements. 

As the chairman has noted this agreement was signed by Mexico 

and the U.S. on February 20, 2012 and ratified by the Mexican 

Senate 2 months later. But yet more than a year later we here in 

the Senate have yet to do our part. It’s time we act to approve the 

4 

agreement and provide the Interior Department the necessary authorities to implement it. 

There are some differences between the bills before us today, primarily related to scope beyond the U.S./Mexico Transboundary 

Agreement. So I would welcome the witnesses? thoughts on these 

provisions. 

With that, I look forward to Senator Landrieu’s comments and to 

hear the testimony from our witnesses. 

Thank you. 

The CHAIRMAN. Senator Landrieu. 

STATEMENT OF HON. MARY LANDRIEU, U.S. SENATOR 

FROM LOUISIANA 

Senator LANDRIEU. Thank you, Mr. Chairman. I really appreciate 

the opportunity. I’ve got to slip out for another meeting and then 

a press conference shortly on another subject. 

But I wanted to be here to give my support to the concept of this 

legislation and to acknowledge how important it is to thank the 

chair and the ranking member for leading this effort to implement 

the Transboundary Agreement between the U.S. and Mexico. It’s 

essential for a variety of reasons. 

It will allow U.S. companies, for the first time, to partner with 

Mexican interest and Mexican companies to maximize production 

in the Gulf which will benefit not only the United States, but Mexico as well, I believe. 

It will give companies the assurance they require to increase investments in deep water production near our transboundary region 

which is a significant area and an important area and a promising 

area. 

The limiting factor to this point has been political, namely the 

lack of a working agreement on how best to manage the area 

claimed by both Mexico and the U.S. 

Now we can understand, Mr. Chairman and ranking member, 

how important this is to our country. But also to the Gulf Coast 

which is why I’m here this morning because Louisiana is one of the 

4 most producers in deep water. Many of our companies, Texas, 

Louisiana, are leading the effort not only in the Gulf, but around 

the world producing oil and gas safely in very difficult environments. 

So we’re very interested in this agreement. 

But I want to say that one of the things that will make a difference whether I can be supportive or not is testimony today, Mr. 

Chairman, from our department. My question is would these lands 

fall under the current GOMESA, Gulf of Mexico Energy Security 

Act, which this committee passed which dedicates a portion of the 

revenues produced from this production back to the Gulf Coast 

States. Now that was an agreement that was reached after many 

years of debate in the United States. Our country said the right 

thing to do is to share revenues with the coastal States that serve 

as a production for these revenues. 

So my one question, you can answer it now or submit the answer 

to the chairman at the appropriate time. But my vote on this bill 

will rest solely on the answer to that question. 

If it’s yes, then I will vote for the bill. 

5 

If it’s no, I will not be able to because we have set a very strong 

policy in the Gulf of Mexico on the U.S. side of this border that we 

believe that it is fair as a Nation. I would hope Mexico would look 

at our model and maybe adopt it. That it’s fair to share the revenues, not just with the Federal Government of Mexico and the 

United States, but with the States that serve as host to the production. 

Some of that production is done in Alaska, not in this situation, 

but Alaska and their coastal communities should benefit from that 

production and share with all the taxpayers of the country, but also 

with the coastal communities. That agreement has been in place 

for interior States since 1920, that sharing of revenues. 

So Mr. Beaudreau, should he answer that now or later, Mr. 

Chairman? 

The CHAIRMAN. Let’s do this. 

First of all the Senator from Louisiana knows I’m going to work 

very closely with her on all these matters. 

Let’s do this. Let’s have the witnesses make their statements. 

But I would like it to be stated now for the record that my first 

question is Senator Landrieu’s question, so that we will begin questioning, when I’m recognized for purposes of that, to have an answer to Senator Landrieu’s question. 

Is that acceptable? 

Senator LANDRIEU. That is very acceptable. Thank you for your 

graciousness. 

The CHAIRMAN. We’ll be working together. 

Alright. Gentlemen, welcome. 

The Honorable Carlos Pascual and the Honorable Tommy 

Beaudreau and we’ll have your statements and you all know what 

my first question will be. So you have a little time to prepare for 

my first question as well. 

Let’s begin with you, Mr. Pascual. We thank you for the cooperation, of course, that the State Department has shown. 

Welcome. 

STATEMENT OF CARLOS PASCUAL, SPECIAL ENVOY AND COORDINATOR, INTERNATIONAL ENERGY AFFAIRS, DEPARTMENT OF STATE 

Mr. PASCUAL. Thank you very much, Chairman Wyden and 

Ranking Member Murkowski and Senator Landrieu as well for participating in your sponsorship. These were excellent opening statements that you made. I couldn’t agree more with the way that you 

framed the issue. Thank you for putting it in that extremely constructive context and the opportunity to reinforce the statements 

that you’ve already made. 

The issues of energy security have been paramount concerns of 

the State Department and of concerns for Secretary Kerry. They 

obviously are for these committees. It’s very appropriate that 

you’ve put this whole issue in the context of energy security because in the end that’s fundamentally what we’re trying to support 

for the United States, a more secure energy future. 

The Administration supports the swift passage of legislation to 

allow for the implementation of the Transboundary Agreement 

signed by Mexico and the United States, as you’ve indicated, in 

6 

February 2012. As you’ve indicated it was ratified by Mexico in 

April 2012. 

So the positive thing is that with passage of legislation here we 

are ready to move. What this would do is it could allow Mexico and 

the United States to move immediately, to bring immediate, the 

agreement into full force and facilitate cooperation between U.S. 

companies and Mexico’s national oil company, PEMEX, to develop 

resources that would strengthen North America’s potential role as 

a hub for energy security. 

Let me begin by stressing the importance that the State Department assigns to a strong energy partnership with Mexico, as you 

have said, Senator Wyden. 

Our energy trading relationship with Mexico is essential to securing stable flows to the United States’ markets. That is critical 

to sustained U.S. economic growth. In fact in 2012 energy related trade with Mexico totaled $65 billion. Mexico has, as was indicated, 10.2 billion barrels in proven reserves. But its production has fallen by more than 30 percent from 

2004 to 2012. 

Still a more positive future for Mexican production is very much 

within reach. 

Mexican President Enrique Pen ̃ a Nieto is making reform a priority. His party submitted legislation for comprehensive energy reform in August. With passage of the reform Mexico could attract 

international investment to develop its hydrocarbon resources and 

reverse the decline in oil production. The implementation of the 

Transboundary Agreement could provide a down payment on those 

prospects for investment. 

The agreement itself would establish a framework that would 

allow for the development of hydrocarbon reservoirs that cross the 

maritime boundary with Mexico. 

It would provide the legal certainty companies need to invest in 

reservoirs along our maritime boundary. This would allow U.S. 

companies to invest in lease blocks along the boundary and where 

appropriate, jointly explore and develop reservoirs in the boundary 

area with Mexico as units. The benefits of managing a reservoir as 

a single unit, long standing practice in the U.S. side of the Gulf, 

are well developed and well known. 

The agreement would extend these benefits to the management 

of transboundary reserves allowing U.S. companies to partner with 

PEMEX to minimize drilling, maximize recovery and achieve the 

environmental benefits that arise from drilling fewer wells. 

Even as the agreement opens more acreage to drilling it would 

do so in a responsible way. Mexico is already moving into the deep 

water regions of the Gulf along our maritime boundary. We can either drill competitively or we can work collaboratively. 

With the passage of the legislation, an entry in force of the 

agreement, we would put in place a framework to not only minimize the number of wells drilled along the boundary. But to provide for joint safety and environmental inspections on all activity 

that takes place under the agreement. 

Both sides would gain from reciprocal arrangements. 

Mexico would still apply and enforce laws in its jurisdiction. 

We would still apply and enforce laws in ours. 

7 

But the agreement would allow U.S. inspectors to join Mexican 

inspectors on their rigs and vice versa. 

In addition we would work together to review regulations to 

make sure that each side has an appropriate framework. 

We would review and approve all activity under the agreement 

whether it occurs in areas under Mexican jurisdiction or under 

ours giving us the ability to ensure that reservoirs along our 

boundary conform to appropriate safety standards. 

This is a business friendly arrangement that will potentially increase revenues and energy security. It comes with strong safety 

and environmental provisions. 

We welcome S. 812 in the interest of both the Senate and the 

House in passing legislation providing congressional approval of 

and granting the Secretary of the Interior the authority to implement the Transboundary Agreement. Our continued engagement 

and progress is a promising step forward to implementing the U.S./ 

Mexico Transboundary Agreement. 

As noted in the statement of Administration policy on H.R. 1613, 

we support passage of legislation focused specifically on the agreement without the inclusion of provisions such as those related to 

section 1504 of the Dodd-Frank Act that would directly delude U.S. 

efforts to increase transparency and accountability. 

We look forward to working with the Department of the Interior 

and the committee on expeditious approval of this important piece 

of legislation. 

In conclusion, we are encouraged by the accelerating pace of 

movement on finalizing this agreement. As many congressional 

members have stated, it is a win/win for the United States and 

Mexico. 

I appreciate the time you are devoting to this issue. Hope that 

we have addressed your request for information on many potential 

benefits for both the United States and Mexico. We look forward 

to answering your specific questions. Thank you for giving us, Assistant Secretary Beaudreau and myself, the opportunity to appear 

before you. 

[The prepared statement of Mr. Pascual follows:] 

PREPARED STATMENT OF CARLOS PASCUAL, SPECIAL ENVOY AND COORDINATOR, INTERNATION ENERGY AFAIRS, DEPARTMENT OF STATE

Chairman Wyden, Ranking Member Murkowski, and other Members of the Committee on Energy and Natural Resources, I appreciate the opportunity to appear before you today. 

I know that each and every Member of this Committee is concerned about our 

nation‘s energy security, and I can assure you that Secretary Kerry and the Department of State share that concern. For that reason, I am happy to be here today to 

discuss the Transboundary Agreement between Mexico and the United States. The 

Administration supports the swift passage of legislation to allow for the implementation of the Transboundary Agreement signed by Mexico and the United States on 

February 20, 2012 and we appreciate the Chair and Ranking Member for their leadership in introducing legislation. We look forward to working with Congress on Senate Bill 812 to accelerate the safe and effective development of hydrocarbon resources that cross the maritime boundary between Mexico and the United States 

in the Gulf of Mexico. 

Let me begin by stressing the importance that the State Department assigns to 

fostering a stable energy partnership with Mexico. Our energy trading relationship 

with Mexico is an important component of North American energy security. Mexico 

is our third largest supplier of imported crude oil and the largest export market for 

U.S. refined petroleum products; in fact, energy-related trade with Mexico totaled 

8 

$65 billion in 2012. Mexico is also a growing market for U.S. natural gas exports. 

By establishing greater legal clarity for the development of reserves that traverse 

the U.S.-Mexico maritime boundary in the Gulf of Mexico, the Transboundary 

Agreement would bring significant benefits to the United States and Mexico. 

The United States and Canada have experienced an increase in energy production 

as a result of private investment, entrepreneurial ingenuity, technological innovation and strong commodity prices. In 2012, domestic oil production climbed to the 

highest level in 15 years. In contrast, Mexico has 10.2 billion barrels in proven reserves, but its production fell by over one third from 2004 to 2012, and projections 

forecast Mexican production will continue to decline in the short-term. This significant trend is often attributed to the maturation of major fields and the challenges 

for the national oil company, Petroeos Mexicanos (PEMEX), to maintain the necessary levels of investment in the sector. 

Mexican President Pena Nieto has made energy reform a priority. His party submitted legislation for comprehensive energy reform in August 2013 and, with passage of the reform, Mexico could attract international investment and expertise to 

help develop its hydrocarbon resources and reverse the decline in oil production. The 

Transboundary Agreement could be a down payment on the promise of more fundamental reform. With entry into force of the Agreement, companies would have a 

framework to develop resources crossing the U.S. maritime boundary with Mexico 

as the current lack of a framework renders these resources too risky to tap. The 

projects that would be enabled by the Agreement would demonstrate that cooperation between PEMEX and international oil companies, including those based in the 

U.S., has the potential to produce significant resources and revenues to benefit the 

Mexican people and economy. 

Despite the challenges facing Mexico in the near term, the exciting story here is 

that North American energy production as a whole could boost our respective national and global energy security. North American energy resources provide the 

prospect not only of assuring our own energy supply, but of contributing to global 

market supplies and helping promote the stability in global energy markets that we 

need to support our domestic economic growth. Such opportunities, including the 

Transboundary Agreement between the United States and Mexico, could support increased Mexican and North American production capacity and could be critical to 

world supplies and economic growth. 

Background 

The Transboundary Agreement between the United States and Mexico addresses 

the development of oil and gas reservoirs that cross the maritime boundary between 

our two countries in the Gulf of Mexico (excluding submerged lands under Texas 

jurisdiction). The Mexican Senate overwhelmingly approved the Agreement in April 

2012. The Administration previously proposed legislative language that would provide the Secretary of the Interior the necessary authority to implement the Agreement. S. 812 closely resembles this language, and its passage would allow implementation to commence quickly. 

Role of the Agreement 

The Transboundary Agreement is an important step in our national efforts to secure our energy future and, at the same time, promote a stronger and long-term cooperative relationship with Mexico in meeting each country’s energy security goals. 

We believe the agreement would help facilitate the safe and responsible management of offshore petroleum reservoirs that straddle our maritime boundary and 

strengthen overall our bilateral relations. 

The Agreement would enable meaningful energy sector collaboration between the 

United States and Mexico (and in particular between U.S. operators and PEMEX), 

which we believe would provide U.S. operators the opportunity to demonstrate the 

benefits of their participation in the Mexican energy market, potentially leading to 

deeper and more meaningful collaboration over time. 

This Agreement will make nearly 1.5 million acres of the Outer Continental Shelf 

more attractive to U.S. operators by unlocking areas for exploration and development along our maritime boundary within U.S. jurisdiction . The Agreement would 

eliminate the moratorium on drilling along the boundary in the Western Gap, and 

provide legal certainty needed for investment in the boundary region. It would allow 

American companies to enter into unitization agreements with PEMEX for the joint 

exploration and development of resources in the areas covered by the Agreement. 

The development of a reservoir as a single unit allows companies to agree how to 

manage the reservoir jointly in the most efficient manner, generally reducing the 

amount of required drilling and therefore reducing environmental impact. Each 

unitization agreement would be required to comply with applicable safety standards. 

9 

As a package, these arrangements could increase revenues and provide greater energy security, while mitigating safety and environmental risks that could result 

from unilateral development along the boundary. 

We are pleased that the Agreement would advance safety and environmental protection in the Gulf. First, it provides for a system of joint inspections for all activity 

that takes place under the agreement. Though Mexican law would apply to operations under Mexican jurisdiction and U.S. law would apply to operations under 

U.S. jurisdiction, each side would have the ability to work with the other to ensure 

that all activity that takes place under the Agreement—wherever it occurs-meets all 

applicable laws and standards. In addition, under the Agreement our two countries 

would continue to work together to ensure that our respective standards and requirements are compatible where appropriate for the safe, effective, and environmentally responsible implementation of the Agreement. 

In all aspects, the Transboundary Agreement offers the United States and Mexico 

significant benefits. It would, for the first time, establish a framework that would 

facilitate the development of hydrocarbon reservoirs that cross our maritime boundary with Mexico. This is a business friendly arrangement with strong safety and environmental provisions. 

S. 812-H.R. 1613 

We welcome S.812 and the interest of both the Senate and the House in passing 

legislation providing the Secretary of the Interior the authority to implement the 

Transboundary Agreement. As noted in the Statement of Administration Policy on 

H.R. 1613, we support passage of legislation focused specifically on the Agreement, 

without the inclusion of provisions such as those relating to Section 1504 of the 

Dodd-Frank Act that would directly dilute U.S. efforts to increase transparency and 

accountability. We look forward to working with the Department of the Interior and 

the Committee on expeditious approval of this important piece of legislation. 

Conclusion 

In conclusion, we are encouraged by the accelerating pace of interest and movement on implementing this agreement, which provides a much needed mechanism 

to facilitate the responsible and efficient exploration and development of hydrocarbon resources along the U.S.-Mexico maritime boundary. As many Congressional 

Members have stated, it is a ‘‘win-win’’ for the United States and Mexico and a win 

for North American energy security because it fosters stronger relationships in the 

development of our shared energy resources. 

I appreciate the time you and your staff are devoting to this issue and hope that 

we addressed to your satisfaction your requests for information on the many potential benefits for both the United States and Mexico, should the Agreement be 

brought into force. 

Thank you again for this opportunity to testify before this Subcommittee and I 

would be pleased to answer any questions the subcommittee might have. 

The CHAIRMAN. Very helpful and again, commendations for the 

good work of all the folks at State who have been on this. 

Mr. Beaudreau, welcome. 

STATEMENT OF TOMMY P. BEAUDREAU, ACTING ASSISTANT 

SECRETARY, LAND AND MINERALS MANAGEMENT, DEPARTMENT OF THE INTERIOR 

Mr. BEAUDREAU. Good morning, Chairman Wyden, Ranking 

Member Murkowski. I’m pleased to appear before you today to discuss legislation to implement the agreement between the United 

States of America and the United Mexican States concerning 

transboundary hydrocarbon reservoirs in the Gulf of Mexico. I’m 

also very pleased to appear this morning before the committee 

alongside Ambassador Pascual, who is one of the Nation’s foremost 

experts in diplomats with respect to our relationship with Mexico 

as well as global energy issues. 

I’d like to begin my testimony today by highlighting a couple of 

central points about the benefits to the United States and to the 

U.S. industry that implementation of the U.S./Mexico 

Transboundary Reservoir Agreement offers. 

10 

Offshore oil and gas development in the Gulf of Mexico has been 

and will remain one of the cornerstones of the United States’ energy portfolio. The offshore oil and gas industry continues to invest 

tremendous amounts of capital and know how into exploring and 

developing oil and gas resources in the Gulf. This includes spurring 

the technical innovations necessary to safely and responsibly develop emerging, world class prospects in deep and ultra deep water. 

During BOEM’s offshore oil and gas lease sales in the Gulf of Mexico over the last 2 years industry has invested more than $3 

billion in leases, the bulk of which was directed toward promising 

emerging prospects in the deep water. Despite industry’s general 

enthusiasm for exploration and development in the deep water Gulf 

of Mexico, leasing in the vicinity of the U.S./Mexico maritime 

boundary has been muted. Areas in U.S. waters within 1.4 miles 

of the maritime boundary currently are under moratorium and cannot be leased. 

More broadly, however, the entire Western Gap boundary region 

is currently subject to legal uncertainty about how potential 

transboundary reservoirs would be handled. Therefore, in my view, 

industry has been reluctant to move aggressively into those areas. 

For example, there are currently 379 unleased blocks in the 

Western and Central Gulf near the maritime boundary and only 14 

of those blocks have been leased. 

Implementation of the Transboundary Reservoir Agreement 

would provide this much needed legal certainty to the region and 

is in alignment with our goals to promote safe and responsible development of our Nation’s offshore oil and gas resources. 

The agreement also is, I believe, strongly supported by industry. 

It is a pragmatic agreement designed to encourage voluntary, commercial solutions between companies operating on the U.S. side of 

the maritime boundary and their counterpart PEMEX on the Mexican side. We worked with U.S. industry during the negotiation of 

the agreement to ensure that the agreement, not only provide the 

legal certainty necessary to justify investment in this region, but 

also would be commercially workable. 

The central principle of the agreement is to encourage voluntary 

unitization agreements between U.S. side companies and PEMEX 

to equitably allocate production from any reservoir spanning the 

maritime boundary. Unitization is a very familiar concept that is 

applied daily by companies working in the U.S. Gulf of Mexico. Ultimately if no voluntary unitization agreement can be reached the 

company would be able to move forward with development unilaterally. 

Finally, the Transboundary Reservoir Agreement represents an 

important step in promoting safe and responsible development in 

a technically challenging operating environment on both sides of 

the boundary. Under the heightened standards that followed from 

Deepwater Horizon, U.S. industry is working more safely and responsibly than ever before. This agreement would not only—would 

not change U.S. laws or regulations that industry works under, but 

does provide further opportunity for cooperation between the 

United States and Mexico to promote high standards for safety and 

environmental protection applicable to all companies working in 

and near U.S. waters. 

11 

I appreciate, very much, S. 812 introduced in April by this committee to implement the Transboundary Agreement. We support 

this legislation and look forward to continuing to work with Congress to improve this important agreement. 

Thank you. 

[The prepared statement of Mr. Beaudreau follows:] 

PREPARED STATEMENT OF TOMMY P. BEAUDREAU, ACTING ASSISTANT SECRETARY, LAND AND MINERALS MANAGEMENT, DEPARTMENT OF THE INTERIOR

Chairman Wyden, Ranking Member Murkowski, and members of the Committee, 

I am pleased to appear before you today to discuss legislation to implement the 

Agreement between the United States of America and the United Mexican States 

Concerning Transboundary Hydrocarbon Reservoirs in the Gulf of Mexico. 

Background 

On February 20, 2012, the United States and Mexico signed an Agreement concerning the development of oil and gas reservoirs that cross the international maritime boundary between the two countries in the Gulf of Mexico (excluding submerged lands under Texas jurisdiction). This Agreement would establish a framework for the cooperative exploration and development of these hydrocarbon resources. The Mexican Senate overwhelmingly approved the Agreement in April 

2012. The Administration wants to work with Congress to ensure implementing legislation approving the Agreement and providing the necessary authority to bring it 

into force is passed. The administration appreciates the work done by Chairman 

Wyden and Ranking Member Murkowski to introduce S. 812, legislation that provides for such authority, and we support its swift passage. As the Administration 

has previously stated, we do not support the extraneous provisions included in H.R. 

1613, The Outer Continental Shelf Transboundary Hydrocarbon Agreements Authorization Act as passed in the House of Representatives. 

The Agreement would allow, for the first time, leaseholders on the U.S. side of 

the maritime boundary to cooperate with the Mexican national oil company, 

Petrθleos Mexicanos (PEMEX), in the joint exploration and safe and responsible development of hydrocarbon resources. This agreement will make nearly 1.5 million 

acres of the Outer Continental Shelf, currently affected by a moratorium under the 

Western Gap Treaty, immediately available for leasing and also make the entire 

transboundary region, which is currently subject to legal uncertainty in the absence 

of an agreement, more attractive to U.S.-qualified operators. For example, the Department of the Interior’s Bureau of Ocean Energy Management estimates that the 

transboundary area contains as much as 172 million barrels of oil and 304 billion 

cubic feet of natural gas. 

Benefits of Implementing the Agreement 

The Agreement provides a legal framework for cooperative offshore oil and gas development along the maritime boundary, sets clear guidelines and provides legal 

certainty for those operations, supports the President’s goal of ensuring domestic energy security and demonstrates our shared duty to exercise responsible stewardship 

of the natural resources in the Gulf of Mexico. It is built on a commitment to the 

safe, efficient, environmentally sound, and equitable development of transboundary 

reservoirs. The Agreement also offers the potential for generating additional revenue for the United States and Gulf States from the lease blocks located along the 

delimited U.S.-Mexico maritime boundary in the Gulf of Mexico. 

The Mexican market has long been closed to participation by U.S. companies, but 

a 2008 energy reform law in Mexico opened a window for joint hydrocarbon exploration and development with foreign entities as long as it would take place pursuant 

to an international agreement on transboundary reservoirs. The Agreement would 

take advantage of that opening. It would also end the moratorium on development 

along the boundary in the Western Gap and provide U.S.-qualified leaseholders with 

legal certainty regarding the development of transboundary reservoirs along the entire boundary so as to encourage investment. The Agreement would remove legal 

and structural barriers that currently impede exploration and safe and responsible 

development along our maritime boundary with Mexico. A significant portion of the 

U.S. maritime boundary with Mexico—the full length of the boundary in the Western Gap—is affected by a moratorium on drilling and exploration pursuant to the 

Western Gap Treaty. Upon entry into force the Agreement would lift the moratorium and open up this area—nearly ten percent of the U.S. portion of the Gap— 

to hydrocarbon development. Finally, having the Agreement in place will mitigate 

12 

the safety and environmental risks that would result from unilateral exploration 

and development along the boundary. 

Implementing Legislation 

The implementing legislation would provide the necessary domestic legal authority to implement certain key terms of the Agreement, including: 

• To authorize the Secretary of the Interior to approve unitization agreements 

and other arrangements necessary for the management of the transboundary 

reservoirs and geologic structures subject to the Agreement; 

• To make available, in certain narrow circumstances necessary for the functioning of the Agreement, information related to the exploration, safe and responsible development, and production of a transboundary reservoir that may 

be considered confidential, privileged, or proprietary under law; and 

• To participate in the Agreement’s dispute resolution processes. 

One of the fundamental components of the Agreement would allow leaseholders 

on the U.S. side of the boundary and PEMEX to explore and develop jointly as a 

‘‘unit’’ a transboundary reservoir or geologic structure, as leaseholders frequently do 

on the U.S. side of the boundary. The Agreement is designed to provide incentives 

for PEMEX and U.S.-qualified operators to enter into voluntary unitization agreements governing the development of transboundary reservoirs. Unitization—where 

two or more leaseholders manage the exploration and development of a resource as 

a unit through a single operator—promotes the rational, efficient production of a resource, reduces waste, and minimizes the number of wells that must be drilled. Existing leases are not covered by the Agreement; however, existing lessees may voluntarily opt-in to the framework if they so choose. 

In cases where a unitization agreement is not initially reached between a U.S.- 

qualified operator and PEMEX, the Agreement provides a process to determine 

whether the reservoir in question is, in fact, a transboundary reservoir that should 

come under the Agreement, and a carefully-calibrated process to determine the allocation of the resource between the two countries and provide the U.S. operator and 

PEMEX another opportunity to form a unitization agreement. If they cannot reach 

an agreement, the Agreement would ultimately allow for unilateral production by 

each side, up to the amount of hydrocarbons that exists on its side of the boundary. 

In other words, in these circumstances U.S.-qualified operators and PEMEX would 

individually develop the resources on each side of the border while protecting each 

nation’s interests, resources and sovereignty. We anticipate, however, that the same 

economic incentives that currently drive voluntary unitization offshore the U.S. will 

similarly drive voluntary unitization under the Agreement, and that this mechanism will be rarely if ever used. 

The Agreement encourages the United States and Mexico to promote common 

safety and environmental standards. However, the U.S. is under no obligation to 

alter its existing environmental laws or standards. Mexico’s standards will apply to 

operations under Mexican jurisdiction and U.S. standards will apply to operations 

under U.S. jurisdiction. 

The Agreement would also establish a system of joint inspections, which would 

allow U.S. safety personnel to inspect PEMEX facilities involved in a transboundary 

operation. Again, however, each jurisdiction retains its authority and responsibility 

to regulate activity on its side of the boundary. The DOI’s Bureau of Safety and Environmental Enforcement and the United States Coast Guard already maintain a 

strong working relationship with the Mexican offshore regulatory authority, the 

Comisiθn Nacional Hidrocarburos (CNH), and this Agreement promotes further cooperation between the U.S. and Mexico with respect to drilling safety and oil spill 

response standards and practices. 

S. 812 

S. 812 introduced on April 25, 2013, authorizes the Secretary of the Interior to 

take actions to implement the Agreement between the United States of America and 

the United Mexican States Concerning Transboundary Hydrocarbon Reservoirs in 

the Gulf of Mexico. We appreciate the opportunity to provide the following preliminary views at this time. 

Generally, the bill would authorize the Secretary to approve unitization agreements and related arrangements for the exploration of, and development or production of oil or gas from, transboundary reservoirs and geological structures; to disclose as necessary under the Agreement information related to the exploration, development, and production of a transboundary reservoir or geological structure that 

may be considered confidential, privileged, or proprietary information under law; 

13 

and to accept and take action not inconsistent with an expert determination under 

the Agreement. 

We support this legislation and the Administration welcomes the opportunity to 

work with Congress to approve this important agreement. 

Conclusion 

In sum, the Agreement provides a much needed mechanism to facilitate the responsible and efficient exploration and development of hydrocarbon resources along 

the U.S. Mexico maritime boundary and provides new opportunities for U.S. companies. The Agreement provides incentives for PEMEX and U.S.-qualified operators to 

enter into voluntary commercial agreements to unitize transboundary reservoirs and 

does not change the application of existing laws or alter existing standards. Once 

the Agreement is in force, both the Bureau of Ocean Energy Management and the 

Bureau of Safety and Environmental Enforcement will assume their respective regulatory responsibilities to implement the Agreement as authorized. 

Mr. Chairman, we look forward to working with the committee to enact legislation 

implementing this important Agreement with our Mexican partners in Gulf of Mexico energy development. 

The CHAIRMAN. Thank you very much, Mr. Beaudreau. 

The question that I indicated I would ask first is Senator 

Landrieu’s. So let’s note that for the record. 

The question to restate it in terms of Senator Landrieu’s concern 

is do the lands affected by the U.S./Mexico Transboundary Agreement fall under the Gulf of Mexico Energy Security Act, known as 

GOMESA, for purposes of revenue sharing? 

Mr. BEAUDREAU. Yes. Any production—— 

The CHAIRMAN. The answer is yes? 

Mr. BEAUDREAU. Yes. Any production coming from these areas 

would be covered under existing royalty sharing arrangements with 

the States. I think quite wisely the legislation doesn’t attempt to 

modify the royalty sharing program in any respect. 

I understand there’s ongoing discussions about whether it would 

be appropriate to modify royalty sharing relative to the State. 

We’re happy to continue participating in those discussions as they 

move forward. 

The CHAIRMAN. OK. 

Ambassador Pascual, in my opening statement I spoke of an 

emerging energy economy. The United States and Mexico are embarking on an agreement that provides an opportunity for our partnership to continue to grow and extend to other areas of commerce 

and trade. 

I am interested in hearing from you regarding any thoughts that 

you may have with respect to what would be the consequences if 

the Congress does not move quickly to implement the agreement. 

What are the consequences and what might be the effects, not just 

in terms of energy, but in terms of our overall dialog between the 

United States and Mexico in the effort to create more jobs? 

Mr. PASCUAL. Senator, thank you for focusing attention on that 

question. 

I think the first issue is to look at the positive side of it, of what 

the potential would be because that helps us understand the consequences. 

North America is going through an energy revolution. We’ve gone 

through it in the United States where we’ve increased oil production by more than 30 percent in 5 years, gas production by 25 percent in the last 5 years. Canada has major increases in both oil and 

gas production. Mexico has gone in the other direction. 

14 

Mexico has recognized that what it needs to do is to create the 

incentives to bring in private investment. That’s one of the reasons 

that they’ve passed or have proposed a major energy reform which 

is under consideration right now. 

So the intent, the objective is to be able to create a hub in North 

America for energy security which is going to be beneficial for the 

United States in terms of its access to energy resources, but also 

as a stabilizing force in global markets. The Transboundary Agreement is the first down payment of the potential that we could see 

between, in cooperation between the United States and Mexico. 

That cooperation in the past was previously prohibited by law. 

By having this Transboundary Agreement it allows, in the interim, the ability to create a framework where American companies 

and Mexican companies can begin to work together to demonstrate 

the impact that those American companies can have on greater 

productivity in transboundary areas. In doing that we set the foundation for something which is even bigger that can come, how 

North America together, and Mexico and the United States, can be 

a foundation for energy supplies that are going to be beneficial to 

our supplies at home and increase our competitiveness by having 

even more access to natural gas at prices that are affordable and 

are lower than what we’ve seen in other parts of the world. 

So this is a huge opportunity to be able to advance competitiveness. It’s a huge opportunity to demonstrate that American investments in international investment is a tool to productivity and that 

it can be done in a way that retains the confidence of Mexican industry and the Mexican people. 

The CHAIRMAN. Mr. Beaudreau, a question for you, again, about 

the consequences of inaction. 

We heard testimony with respect to efforts with the United 

States and Mexico in terms of resource management, the safety inspection teams moving to adopt common safety and environmental 

standards. What’s the result of Congressional inaction in terms of 

safety and environmental oversight if this does not go forward? 

Mr. BEAUDREAU. Thank you for that. 

Following the spill we, at the Interior Department through 

BOEM and BSEE redoubled our efforts to support the fledgling oil 

and gas regulator in Mexico, CNH, their national hydrocarbon commission. As everyone here appreciates a spill in the Gulf of Mexico 

will not respect the boundaries of the Nation that authorized the 

drilling activity. So it only makes sense that we have a common approach to safety and to our ability to respond in the event of an 

accident. 

We will continue working with CNH to provide support regardless of whether there’s an agreement. But frankly, having this 

agreement in place, having formal relationships between U.S. operators and PEMEX, relative to these areas, goes very far in supporting and strengthening those relationships both with PEMEX 

and with CNH. So it would be a major lost opportunity if we were 

to let this go by. 

The CHAIRMAN. Very good. 

Senator Murkowski. 

Senator MURKOWSKI. Thank you, Mr. Chairman. 

Gentlemen, thank you for your testimony this morning. 

15 

Ambassador Pascual, you mentioned the benefits to North American energy independence, energy security, all of which I absolutely 

agree with. You’ve also referred to or you’ve outlined it this way 

that we can either drill competitively or collaboratively and focus 

jointly on the environmental considerations, the safety considerations, looking at this agreement that we have in front of us. I certainly view it as an opportunity, a positive opportunity, on a lot of 

different fronts. 

The Chairman has asked you a little bit about, you know, the 

benefits then that flow from this. I’d ask you to speak to what the 

downside is, again, if we fail to advance this Transboundary Agreement and more from the diplomatic perspective. You’ve mentioned 

that this is kind of a down payment on a relationship with Mexico 

and helping them in other ways. 

But we’re dealing with the situation with our neighbors on our 

northern border, with Canada. We’re trying to figure out how we 

would be able to advance a Keystone XL pipeline. I look at this on 

the southern side and would suggest that it’s important that we 

have good relationships, good diplomatic relationships, with our 

neighbors. 

I guess I would ask you to detail what you think the response 

would be if the United States fails to engage on this 

Transboundary Agreement before such time, before the end of the 

year here. It’s been noted that Mexico has already acted. We have 

been sitting on it now for a year. 

How will we be viewed by our neighbors to the south if we fail 

to act? 

Mr. PASCUAL. There we go. 

Thank you, Senator for putting it so sharply and in focus. 

The issues of hydrocarbons development have been hugely sensitive in Mexico since 1938 with the nationalization of oil. After 

that period of time the ability for Mexico to cooperate with any outside entity on the development of hydrocarbon resources has been 

virtually non-existent, except for some form of service contracts. 

Mexico took on, as a matter of good faith, that because of the 

transboundary nature of these reserves that it should find a way 

to work together with the United States in the development of 

these resources. It was, what some might consider, I think, a courageous political act because of the sensitivity of these issues. 

For Mexico it took on in good faith the willingness to pass this, 

recognizing that the United States was going to take longer in 

moving forward. It has been a long period of time. 

There’s a risk that if we do not pass this before the moratorium 

that it would be seen that the United States has reneged on a commitment to cooperate on the development of international energy 

resources. That will not only have a negative impact on the seriousness and the commitment of the United States, but particularly in 

an area that has been one of tremendous sensitivity. 

The timing, in many ways, is also particularly critical because of 

Mexico’s energy reform. In that energy reform that President Pen ̃ a 

Nieto has proposed, Mexico would since 1938 for the first time 

allow for the development of private contracts with international 

companies that would foresee the possibility of joint ventures between American companies and PEMEX. So at the very time that 

16 

Mexico is looking at the potential for much deeper reform the 

United States would be sending a message that on the areas that 

we have agreed to cooperate and follow up that we have pulled 

back and reneged. 

That’s not only negative to our diplomatic relationship. Frankly 

it’s negative for American companies that eventually will have a 

significant interest in investment in Mexican energy resources. If 

one looks at developments in the Gulf of Mexico, if you look at a 

map that is shot from overhead, the U.S. side of the border is filled 

with investment opportunities. The south of that is almost blank. 

It’s not because the resources aren’t there. It’s because the conditions haven’t been there. The opportunities may finally be created 

where those resources could actually be exploited. 

So from both the diplomatic perspective and a commercial perspective, not to move forward is sending exactly the wrong signal 

to Mexico at a critical time when we have real positive opportunity 

since 1938 to demonstrate the cooperation with American companies on the development of hydrocarbons resources is good for 

Mexico’s economy, good for the Mexican people and can be done in 

a way that’s environmentally sound. 

Senator MURKOWSKI. Thank you. I appreciate the very thorough 

explanation. I think it’s important to have all of that out on the 

record. 

Mr. Beaudreau, you mentioned the fact that the unitization 

agreements are voluntary. What happens if there is no unitization 

agreement that can be reached? 

Now you have suggested that you—a lessee could move forward 

unilaterally. How would that actually operate? How long do you try 

to work something out until such time as somebody decides that 

they might be able to move unilaterally? 

Mr. BEAUDREAU. The entire agreement, as I mentioned in my 

opening statement, really takes a pragmatic approach to encourage 

voluntary unitization between a U.S. side operator and PEMEX 

and provides time in which to do that. So at the first stage—there’s 

phases under the agreement. 

At the first stage the companies have about 6 months to see if 

they can, without any encouragement from the outside, work out 

an agreement. Frankly the U.S. industry has already begun working on model unitization agreements that could be used. 

If that’s not successful the companies have an opportunity to 

bring an outside expert, a third party expert, to help resolve any 

technical issues around the reservoir. 

In total neither side can move forward with the Transboundary 

Reservoir, bring it into production for a 16 month period. 

If after 16 months no voluntary unitization agreement can be 

reached the operator would be allowed to move forward unilaterally. 

All that said, we believe and I think industry believes there are 

such strong commercial incentives to do this. This is why there 

hasn’t been unilateral development in the area already. There’s 

such strong incentives to have an agreement for orderly development that we actually think cases of unilateral development would 

be pretty rare. 

Senator MURKOWSKI. I’ve just got one more quick question. 

17 

The CHAIRMAN. Yes, sure. 

Senator MURKOWSKI. If I may, Mr. Chairman. 

The CHAIRMAN. Of course. 

Senator MURKOWSKI. Should the Transboundary Agreement be 

approved and the legislation to implement it be approved, does the 

Department have plans to hold any lease sales within the 

Transboundary area? 

Mr. BEAUDREAU. Yes. 

In fact in our recent sales we have annual sales in both the 

Western and Central Gulf. Both planning areas implicate this 

transboundary area. Up until now we have offered those areas, interest in the areas have been muted because of the uncertainty. 

We’ve also held any bids that we’ve received in those areas. 

There have been a few, not many. There have been a few. 

We’ve held those bids with the understanding with the bidder 

that unless the agreement is put into effect, we wouldn’t award the 

leases. This removes all of that uncertainty and would allow us not 

only to receive bids, but make the awards as well. 

Senator MURKOWSKI. So just so that I understand that. 

If—assuming that this agreement is put in place. We’ve got the 

legislation to implement it. You would already have interested applicants for those lease sales that have been received prior to that 

time of implementation. 

So you would act on those. Then there would be subsequent lease 

sales following that? 

Mr. BEAUDREAU. No. We would be able to offer those—there are 

companies interested in the area. 

Senator MURKOWSKI. Right. 

Mr. BEAUDREAU. Assuming this uncertainty can be removed. 

We would continue to offer the areas, but be in a better position 

to actually award the leases. 

Senator MURKOWSKI. OK. 

Mr. BEAUDREAU. So these areas in the Central Gulf would be offered in our upcoming sale next spring, for example. 

Senator MURKOWSKI. So these have already been identified in 

terms of where they are and in the interest shown them? 

Mr. BEAUDREAU. Correct. 

Senator MURKOWSKI. OK. Great. 

I appreciate that clarification. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Manchin. 

Senator MANCHIN. Thank you, Chairman and Senator Murkowski. 

You know I stated many times before achieving energy independence is the most critical thing we can do as a country. I’ve felt that 

way. I come from a little State of West Virginia, who is a tremendous energy producer and has contributed quite a bit and wants to 

continue to contribute. 

Working with our neighbors, North American neighbors, we 

think is essential to achieving this priority. I’ve continued to support an all in energy policy which basically would be in consideration of the XL pipeline, Keystone XL pipeline, which I wholeheartedly support. I think that anything we can do to develop what 

we have here in North America is going to be great for all of us. 

18 

We know there’s significant oil and natural gas reserves in the 

areas covered by these bills that we’re talking about. Developing 

the reserves would not only reduce our energy dependence on countries outside of North America, but it will also create good paying 

jobs which is a win/win for our country right now. So we appreciate 

this opportunity that we can find some common ground that we 

can move forward. 

What I would like to ask, I think, is that to the Ambassador. 

How do you see the agreement affecting the North America’s role 

in the global energy market and I mean an entire market making 

us less dependent, be more secure? Do you believe that that can 

happen? This is something that we should be moving forward on? 

Mr. PASCUAL. Senator, yes, absolutely. Indeed both Senator 

Wyden and Senator Murkowski have been reinforcing this point. 

I’ve been trying to reinforce it as well. We agree with you completely on the importance of trying to bring forward the North 

American energy resources that can help reinforce Americans, 

North Americans self reliance. 

I think a couple of critical factors to put into account, to take into 

account, is that the United States already has vastly increased its 

energy production, as you well know, coming from a heavy energy 

producing State both in oil and gas. 

Canada is increasing its production of oil and gas. Mexico has 

gone in the opposite direction. 

One of the things that Mexico needs in order to be able to join 

that more North American trend is the kind of technology and investment that’s necessary, particularly in deep water and unconventional oil and gas development. 

So for that reason Mexico has undertaken a couple of initiatives. 

One is this Transboundary Agreement because it recognizes that 

for transboundary reserves it needs cooperation between PEMEX, 

the Mexican oil company and international companies, U.S. companies, to be able to develop those resources and the legal framework 

that allows that capital to be able to come in place. 

The second thing that Mexico is doing is it’s proposed a very significant energy reform that would completely change the perspectives for private investment in conjunction or in joint ventures with 

PEMEX. 

So if these things can begin to move forward and we see that 

there’s a change in the legal environment with Mexico we have a 

North American hub that is contributor to energy supplies within 

our region. But frankly that’s also a contributor to broader global 

energy security. 

The reason I would underscore that as particularly important is 

that in the United States, particularly for oil, we pay global prices. 

We have a concern about what happens in global markets. If there 

isn’t adequate supply to satisfy those international markets it has 

an impact on us in the United States of what we pay at the pump 

and for American economic productivity as well. 

So for all of these reasons the kind of measure that’s specifically 

addressed here in the Transboundary Agreement is reinforcing and 

supporting of that idea of American energy security. But it also is 

a foreshadowment of something which is even bigger of the potential for resurgence of North America as a whole to—— 

19 

Senator MANCHIN. Let me ask this question. 

Now basically with the area that we’re talking about right now 

and I think they’re estimating, Mr. Beaudreau, as that there’s 172 

million barrels of oil and 304 billion cubic feet of natural gas that 

you all have estimated. How did you come to that assessment? 

Mr. BEAUDREAU. That assessment is based on analysis of the geology and the resource potential within that narrow transboundary 

strip. I honestly believe that the potential impacts of this agreement in terms of opening that area up and providing legal certainty will be broader than those statistics. 

Senator MANCHIN. Let me ask this. Has Mexico been able to develop the deep drilling in the areas that they have control of? 

Mr. BEAUDREAU. No. 

Senator MANCHIN. I know we’re talking about this area here 

mostly because for North America, for us the United States to be 

in there and work on agreements since it’s kind of in no man’s 

land, if you will. But has Mexico really developed to the potential 

they have? 

Mr. BEAUDREAU. No. Ambassador Pascual should feel free to expand on it. 

There is no production on the Mexican side of the transboundary, 

the maritime boundary. There is existing production in this geologic formation, the Perdido Fold Belt, in the Western Gulf on the 

U.S. side out of the Perdido hub. But the geology, as Ambassador 

Pascual described in his opening, is the same. There’s lots of reason 

to think that it’s highly perspective. 

There have been 2 exploration wells drilled on the Mexican side 

by PEMEX. So they are in the area. They’re interested in the area. 

The question is whether we’ll be there with them. 

Senator MANCHIN. Let me just ask one more question, if I may? 

The CHAIRMAN. Of course. 

Senator MANCHIN. The average American at the pump has not 

seen relief every time that we do have this energy independence. 

We’re finding more and more oil. We’re finding shale gas. They 

have not seen the relief. 

I know in my State of West Virginia we are not seeing the pump 

prices that are relative to what we’re finding more energy in our 

country. I’m understanding that could be because of the refinery 

capacities that we have in our country. 

Don’t you think that maybe we could have a better relationship 

or kind of a joint relationship with Mexico, who probably is able 

to permit and build refineries that would help us have the supply 

we need in our country? Has that ever been explored to that extent, some kind of relationship there? 

Mr. PASCUAL. Sir, the issue of how global markets and those 

global markets intersect back with our markets back in the United 

States are, as you say, a concern to Americans broadly and a concern to American productivity. So one of the realities is that the 

United States has supported generally free trade and free markets 

and as a result of that we pay international prices for oil. 

So when the price of oil goes up to very high levels and it’s been consistently at over $100 a barrel over the last 2 years and at 

times has gone to about $125 a barrel. It’s now down to a little bit 

less than $110. 

20 

That has a direct impact. 

Senator MANCHIN. Are there any options from pricing standpoint? If we’re doing more and doing the heavy lift, if you will, 

more discovery, more technology, more of everything. We’re not 

going to benefit because we’re in this global pricing. Other countries haven’t picked up the load or haven’t done the heavy lifting 

or created new technologies. 

Is there any chance for any relief for the United States of America and the people of this country to have the benefits of this? 

Mr. PASCUAL. The critical thing to benefit the American people 

has been to get sufficient and adequate supplies on global markets 

to be able to balance those markets. The alternative would be to 

have to subsidize energy prices. 

The United States has not supported that. It has not supported 

the subsidies for fossil fuels. So it obviously would be another impact on the budget to be able to do that. 

So the approach that has been taken is to encourage as much 

private investment as possible, the conditions for private investment, so companies from the United States, from around the world, 

can develop those energy resources. 

Fortunately the American companies have been in a leadership 

role and being able to do that. It’s created significant jobs as a result of that for those companies for the American service industries. 

Senator MANCHIN. But little relief. 

Mr. PASCUAL. Then brought that back to the United States. 

Senator MANCHIN. But very little relief, wouldn’t you agree? 

Mr. PASCUAL. Pardon me? 

Senator MANCHIN. Very little relief. 

Mr. PASCUAL. In terms of broader impact on energy prices. 

Senator MANCHIN. To the consumer. 

Mr. PASCUAL. It has not changed those. 

Senator MANCHIN. So someone is doing extremely well. 

Mr. PASCUAL. Pardon me? 

Senator MANCHIN. Someone is doing financially extremely well? 

Mr. PASCUAL. There are certainly many companies that have 

benefited financially from—— 

Senator MANCHIN. I don’t—I’m not faulting that. 

I’m just saying sooner or later the consumer has got to win one. 

Just one. Right now they’re not. 

You’re going to open this up and open that up and all these 

things are going to be great and helpful. But if it’s not going to give 

this relief how do you go home and sell it to the people to get support? 

That’s the problem we have, sir. 

I’m so sorry. I went over my time, sir. I’m sorry. 

The CHAIRMAN. I thank my colleague. This discussion of how the 

relief is actually going to make its way to people at the pump is 

something that is going to be continued and focused on very aggressively by this committee in the months ahead because certainly 

as people talk about production and then people pull up to the 

neighborhood station and still feel like they’re getting mugged trying to afford to fill their tank is an increasingly important question. 

Now, here’s where we are. 

21 

I’m going to do everything I can to pass this agreement quickly 

and cleanly. I think you all have done a very good job. I appreciate 

the answer that you gave to Senator Landrieu’s question so that 

the agreement will in fact apply to the important statute she authored, the GOMESA Act. 

We’ll probably be talking to you about additional questions. But 

we’re going to do everything we can to move this quickly and cleanly. We appreciate your good work and we’ll excuse you at this time. 

Mr. BEAUDREAU. Thank you. 

The CHAIRMAN. Let’s now bring forward Ms. Jacqueline Savitz, 

Vice President, U.S. Oceans, Oceana. 

Mr. Erik Milito, Director, Upstream and Industry Operations, 

the American Petroleum Institute. 

Alright. We welcome both of you. 

We have Ms. Jacqueline Savitz, Vice President, U.S. Oceans, 

Oceana. We’ve worked with you all often. 

Ms. SAVITZ. Yes, sir. 

The CHAIRMAN. Not in the years past. Appreciate the good work 

you’re doing. 

Mr. Erik Milito, Director Upstream and Industry Operations, 

American Petroleum Institute. Often ask for your views on issues. 

So we’ll make your prepared remarks a part of the record in 

their entirety. I know there’s always a compulsion to almost just 

read every word. If you can just summarize your views that would 

be great. 

Let’s begin with you, Ms. Savitz. 

STATEMENT OF JACQUELINE SAVITZ, VICE PRESIDENT, U.S. 

OCEANS, OCEANA 

Ms. SAVITZ. Thank you, Chairman Wyden, good morning. Morning, Ranking Member Murkowski. Thank you for the opportunity 

to testify here today. 

My name is Jacqueline Savitz and I’m the Vice President for U.S. 

Oceans for Oceana. We’re a global ocean conservation organization 

and we’re dedicated to restoring and protecting the world’s oceans. 

Oceana believes that offshore drilling should not be expanded. 

For that reason we oppose S. 812 and H.R. 1613. There are 3 primary reasons which I’ll summarize for you today. 

First, the presumption that more oil and gas is better should not 

drive our energy policy. Instead we should embrace and promote 

the needed shift away from fossil fuels and toward clean energy 

which will benefit Americans today and also future generations. 

This means making more strategic investments to move away from 

dirty and dangerous fuels that present major risks both in terms 

of their current production practices and their long term impacts 

on climate. 

The science shows clearly that fossil fuels like oil and gas are 

driving climate change which threatens to bring us famine, 

drought, increased storm frequency and intensity, sea level rise 

and ocean acidification. Thus scientific bodies like the International 

Energy Agency have recommended that much of our oil reserves ultimately must be left in the ground to avert the worst impacts of 

climate change. 

22 

Our second concern is that the agreement fails to satisfy a basic 

cost benefit analysis as it brings a tremendous amount of risk of 

devastating spills and climate impacting results with little benefit. 

The agreement does not adequately address the safety risks associated with oil and gas development and current Federal requirements do not provide an effective backstop. Both bills are silent on 

environmental protections and the agreements suggest protections 

where appropriate or where necessary which is a recipe for disaster. 

A spill from one rig, like the Deepwater Horizon, would be devastating to fisheries and tourism economies both in the U.S. and 

in Mexico, not to mention the ecosystem itself. The revenues don’t 

come close to making up for it. 

The oil that we will produce as a result of this agreement would 

supply us for about 4 and a half days. The natural gas would supply only about 2 days of our natural gas demands. In exchange we 

risk another major oil spill like Ixtoc or the more recent Deepwater 

Horizon disaster. 

Since that accident Congress has not passed a single new safety 

requirement. The new rules that have come out of the Department 

of the Interior are not sufficient. 

They fail to require sufficient technology. 

They rely on technology with design flaws like blow out preventers which third parties have found to have design flaws. 

They’re undercut by minimal penalties and willfully inadequate 

inspections and enforcement. 

Liability limits also remain inadequate with no fix in sight. 

So the risk that would result from production in transboundary 

area are not justified by the benefits. 

Our third concern is that the continued emphasis on expanded 

offshore drilling is slowing the necessary investment in clean energy, clean energy development, which would stimulize the economy, I’m sorry, which would stimulate the economy without the intended risks and would also help to alleviate the worst impacts of 

climate change. Alternative energy sources like solar and offshore 

wind promise to mitigate climate change impacts while providing 

jobs and stimulating the economy as much, if not more, than fossil 

fuels would. 

According to the Department of Energy the U.S. has more than 

4,000 gigawatts of offshore wind energy potential. This is enough 

energy to power the U.S. 4 times over. This abundant domestic resource could support up to 200,000 manufacturing, construction 

and operation jobs across the country and drive over 70 billion in 

annual investments by 2030. 

Developing even 10 percent of this clean energy resource for just 

1 year, 10 percent, would produce at least 25 times more energy 

than developing all of the oil and gas in the transboundary area 

and unlike that oil the wind will continue to produce clean energy 

year after year. 

The choice is clear for our children and our grandchildren. We 

need to shift away from fossil fuels and toward clean energy. This 

bill takes us in the wrong direction. 

Expanding drilling to areas that are hard to reach or difficult to 

negotiate like the U.S./Mexico Transboundary areas will leave us 

23 

with a continued dependence on dirty and dangerous energy 

sources and severe climate impacts in exchange for very little actual energy. There’s a better energy strategy and Congress should 

lead us in a new direction. 

Thank you. 

[The prepared statement of Ms. Savitz follows:] 

PREPARED STATEMENT OF JACQUELINE SAVITZ, VICE PRESIDENT, 

US. OCEANS, OCEANA

Introduction 

Good morning Mr. Chairman and members of the committee. Thank you for the 

opportunity to testify today. My name is Jacqueline Savitz, and I am Vice President 

for U.S. Oceans for Oceana, a global ocean conservation organization based here in 

Washington, D.C., that works to restore and protect the world’s oceans. Besides our 

headquarters in Washington D.C., Oceana has international operations in Belgium, 

Denmark, Spain, Belize and Chile. Here in the U.S. beyond our D.C. operations, we 

have staff located in Alaska, Oregon, California, Maine, New York, Virginia, South 

Carolina and Florida. We have 750,000 members and supporters from all 50 states 

and from countries around the globe. Our mission is to protect our oceans and the 

fish and wildlife that depend on them. 

Oceana opposes S.812, and its counterpart in the House, H.R.1613, for three reasons. 

First, we do not believe that drilling operations should be expanded. Expanding 

offshore drilling is unnecessary and dangerous, especially when we haven’t yet fully 

addressed the risks. Besides the obvious impacts of oil exploration, production, refining, and transportation, the use of oil and gas is also problematic as these fossil 

fuels are contributing to climate change. Our continued expansion of their use is unnecessary and wrong-headed. In order to combat global climate change, we should 

be transitioning off of fossil fuels in favor of clean, renewable energy development. 

Second, our continued emphasis on expanding offshore drilling is slowing the necessary investment in clean energy projects that will stimulate the economy without 

the attendant risks, and help to alleviate the worst impacts of climate change. 

Lastly, the ‘‘Agreement between the United States and Mexico Concerning 

Transboundary Hydrocarbon Reservoirs in Gulf of Mexico’’ (‘‘Agreement’’) fails to 

satisfy a basic cost-benefit analysis, as it brings a tremendous amount of risk of devastating spills, and climate impacting results, with little concomitant benefit. The 

Agreement itself does not adequately address the safety risks associated with oil 

and gas development, and current federal requirements do not provide an effective 

backstop. The agreement also fails to provide significant benefits to the United 

States, beyond what we can be getting from clean energy. The risks of the expanded 

drilling called for in the Agreement far outweigh the rewards. Rather than opening 

this area to new and expanded oil and gas production, we believe that the moratorium on drilling in the transboundary area should be continued, and that the U.S. 

should invest further in stimulating the development of offshore wind and other 

clean energy opportunities. 

WE SHOULD NOT EXPAND OFFSHORE DRILLING 

The proposed expansion of offshore drilling is unnecessary and dangerous, and we 

haven’t yet fully addressed the risks. The federal government’s most recent FiveYear Plan allows access to more than 75 percent of estimated undiscovered technically recoverable oil and gas resources on the U.S. Outer Continental Shelf. At the 

same time, the oil and gas industry is sitting on a large number of non-producing 

leases in federal waters. According to a July 2013 U.S. Department of the Interior 

report, oil and gas companies hold almost 6,000 active leases in the Gulf, 82 percent 

of which are non-producing leases. This represents more than ample opportunity for 

exploration and development and certainly more than we would get by expanding 

drilling to the transboundary area. Additionally, even if all of the oil available in 

the transboundary area were to be extracted and the U.S. recovered the entirety of 

the reserve, this amount would be less than one-half percent of the total amount 

of technically recoverable oil currently available in the Gulf of Mexico (specifically, 

0.37 percent). Couple this with the fact that our continued reliance on fossil fuels 

is exacerbating global climate change and it is hard to find the logic in expanding 

offshore drilling to the transboundary area when there is so little benefit for us in 

return. 

24 

DRILLING IS NOT SAFE 

Following the Deepwater Horizon disaster, the newly created Bureau of Offshore 

Energy Management, Regulation and Enforcement (′′BOEMRE′′) issued three sets of 

new safety regulations in an effort to increase offshore drilling safety and to prevent 

a similar disaster from happening again. Following the initial release of the new 

safety regulations, Oceana conducted an exhaustive review which looked at every 

new requirement to assess the degree to which they would improve safety. We found 

that these new rules simply did not take necessary steps to minimize risks, and further, would not prevent us from having another catastrophic spill. 

The new rules suffer from their own shortcomings, and any positive benefit new 

safety regulations might offer are undermined by systemic problems that have yet 

to be corrected. These include an inadequate inspection capacity and an insufficient 

penalty structure which leads to continued economic incentives to cut corners and 

ignore requirements. 

SAFETY MEASURES PUT IN PLACE SINCE DEEPWATER HORIZON FAIL TO 

MAKE DRILLING SAFE 

The Final Drilling Safety Rule 

The provisions of the Final Drilling Safety Rule can be divided into three categories: training and maintenance, equipment testing, and well design and equipment. While many of these regulations represent positive reforms that are an improvement over the regulations in place during Deepwater Horizon, the Final Drilling Safety Rule’s effort to increase safety is undermined by systemic problems in 

offshore regulation and by serious shortcomings in the rule itself. 

Training Maintenance 

Improved maintenance and training are both positive reforms that can reduce 

chances of equipment failure and operator error and thus increase safety. Yet of all 

the provisions in the Final Drilling Safety Rule, training and maintenance regulations are the most dependent on the robustness of BSEE’s oversight and inspection 

capabilities. Maintenance is an ongoing concern that necessitates being frequently 

checked and inspected and training is only valuable if it translates into appropriate 

actions, which also requires continuous oversight to ensure safety regulations are 

properly met. Unfortunately, BSEE’s oversight and inspection programs are woefully inadequate and civil penalties are far too small to ensure compliance and deter 

risk- taking by the industry. These systemic problems undermine the Final Drilling 

Safety Rule’s efforts to increase offshore safety through new training and maintenance requirements. Ensuring the efficacy of many of the new rules would require 

a much stronger inspection and oversight program than what currently exists. 

Equipment Testing 

BSEE has implemented numerous new equipment testing requirements that 

apply to various stages in offshore drilling. These testing requirements might seem 

to improve the safety of offshore drilling; however, they are also undermined by 

BSEE’s inadequate inspection program and by insufficient civil penalties that create 

a perverse economic incentive to skip or ignore tests to save time. 

Well Design and Equipment 

The Final Drilling Safety Rule requires drilling wells to be equipped with two 

independent barriers to flow. If correctly installed, these barriers could in fact protect against blowouts. However, the requirements for two barriers to flow can easily 

be undermined by operator error. This problem is illustrated by the Deepwater Horizon disaster, where a cement job, a common barrier to flow, was compromised by 

numerous operator errors. With limited funds for inspection and oversight, and perverse economics that incentivize project speed over safety, it is likely that not all 

barriers will be properly installed. 

No New Blowout Preventer Rule 

BSEE still has yet to implement its new safety rule on blowout preventer technology. Blowout preventers are used to seal a well in the case of a blowout or a loss 

of well control. They provide the last line of defense against offshore drilling blowouts. Both the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling and the National Academy of Engineering have recommended that 

blowout preventers be redesigned in light of flaws uncovered by the Deepwater Horizon oil spill. Unfortunately, this has not been done. While some new testing and 

maintenance regulations for blowout preventers have been enacted, these neither 

address nor fix the underlying design flaws. Furthermore, simple requirements that 

would improve the odds that a blowout preventer functions correctly and seals the 

25 

well—such as requiring redundancy in its shearing rams or testing blowout preventers under real-life conditions—have not been required. As a result of the government’s inaction in this area, blowout preventers being used throughout the Gulf 

of Mexico and elsewhere are at risk of failing just as the Deepwater Horizon’s did. 

Failure by the government and the industry to ensure the effectiveness of blowout 

prevention technology is problematic, but continuing to allow and even expand drilling, especially in deep water, in spite of this failure is absolutely unacceptable. 

Oversight and Inspection Levels are Paltry Relative to the Scale of Drilling Operations 

Since the Deepwater Horizon disaster there has not been a sufficient increase in 

the number of federal inspectors or the size of penalties. While the Bureau of Safety 

and Environmental Enforcement (′′BSEE′′) has attempted to strengthen its inspection and oversight capabilities, funding levels remain far below what would be needed for frequent and thorough inspections that would reduce instances of equipment 

failure and operator error. Low inspection rates not only undermine regulatory compliance by reducing the odds that violations will be observed, but also limit realtime monitoring of operations by inspectors, a necessary prerequisite to avert disasters as problems are difficult to foresee even a few days before they occur. This creates a perverse incentive for operators to risk violations when doing so can save 

them time and/or money, rather than properly following the new safety regulations, 

because they are unlikely to be caught. 

The United States is far behind the rest of the developed world when it comes 

to inspectors available and trained to inspect the oil and gas rigs off our coasts. The 

number of inspectors per offshore oil rig in other developed countries is as follows: 

in the U.K., the inspector to rig ratio is 1: 2.78; in Norway, the inspector to rig ratio 

is 1:1.05; in the U.S., the inspector to rig ratio is 1:29. We are playing Russian roulette with our offshore drilling operations by not having a sufficient inspection program and thus, even BSEE’s new safety requirements cannot make offshore drilling 

significantly safer or decrease the chances of an oil spill. 

Violating Rules Can be Lucrative Because Penalties Remain Small 

BSEE’s civil penalties are too small to ensure compliance and deter risk taken by 

the oil and gas industry. The maximum penalty BOEM can assess for civil violations is $40,000 per day per violation. In comparison, BP was paying over $500,000 

per day to use the Deepwater Horizon rig, and total estimated daily operating costs 

of the operation were approximately $1 million. This disparity between penalties for 

violating regulations and operating costs creates a perverse incentive for drillers to 

cut corners and complete operations in a timely rather than safe manner. Indeed, 

Former Director of BOEMRE Michael Bromwich expressed a similar sentiment in 

testimony delivered to the House Natural Resources Committee, stating that ‘‘the 

current enforcement framework, which permits maximum fines of only $40,000 per 

day, per incident, is patently inadequate to deter violations in an environment 

where drilling operations can cost more than a million dollars a day.’’ 

The driller can risk a violation in part because they are unlikely to be caught and 

penalized, in part due to BSEE’s inadequate inspection capabilities, and also because even if they are caught, the penalty is so low that it may pay to break the 

rules. Raising the maximum fine BSEE can assess for civil penalties to a level comparable with operational costs would eliminate the perverse financial incentive for 

corner-cutting and increase the likelihood offshore operators comply with the new 

safety regulations. Raising the penalty would have to be done by Congress, as BSEE 

is legally constrained in how many times and to what extent it can raise penalty 

sizes. As long as rule-breaking pays, new rules cannot protect us from a spill. 

At the time of the disaster, the Administration stated that it would not allow 

drilling to resume unless safety concerns were addressed. Yet drilling was allowed 

to resume in spite of the lack of sufficient safety regulations. We believe this was 

a mistake in itself. However, further expansion of oil and gas development, as is 

envisioned by H.R.1613 and S.812, is clearly wrong-headed, and is a set up for another drilling disaster like the Deepwater Horizon or IXTOC events. 

CLIMATE CONSIDERATIONS 

In May, for the first time in history, the Earth’s atmospheric carbon dioxide levels 

reached 400 parts per million (ppm). This ominous milestone is a stark reminder 

of what our continued dependence on fossil fuels is doing to our planet. Such dangerous levels of carbon dioxide in the atmosphere are bringing us ever closer to the 

point of no return and we are already witnessing its disastrous effects. Hurricanes, 

tornados, tropical storms, and ‘‘superstorms’’ have increased in both severity and 

frequency. Not only have these storms resulted in the loss of human life and irrevocable property damage, but they have also gotten increasingly expensive, costing 

26 

billions of dollars in taxpayer money to clean up devastated towns and cities in the 

U.S. and elsewhere. 

These storms are the alarm bells of climate change. We need to act swiftly and 

immediately to drastically reduce the level of carbon dioxide we are pumping into 

the Earth’s atmosphere. A 2012 report from the International Energy Agency (IEA) 

held that extreme consequences of climate change would be associated with a 2 degree Celsius warming. As the world’s authority on global energy trends, the IEA 

concluded that in order to achieve a goal of keeping warming under 2 degrees Celsius, two-thirds of our fossil fuel reserves—oil, natural gas and coal—need to stay 

in the ground as opposed to being released into our atmosphere through production 

and use as fuel. Instead of doubling down on drilling which will push us past these 

climatic tipping points, we should heed the warnings of these experts and begin the 

swift transition from fossil fuels to clean, renewable energy. 

Offshore wind can be a big part of this transition, as the scale of America’s offshore wind energy resource is truly staggering, with literally thousands of gigawatts 

(GW) of clean energy available off our shores. For over 20 years, Europe has been 

generating clean energy and jobs from its offshore wind resource. In fact, there are 

1,700 offshore turbines spinning at 55 offshore wind farms overseas, generating approximately 5 GW of electricity. Yet, the U.S. remains stalled with no wind farms 

in the water at all to date. 

According to the DOE’s 2011 report, ‘‘A National Offshore Wind Strategy: Creating an Offshore Wind Energy Industry in the United States,’’ the U.S. has over 

4,000 GW of gross offshore wind energy potential off its coasts. As former Secretary 

of the Interior Ken Salazar has repeatedly noted, that is enough energy to power 

the U.S. four times over. 

Also according to the DOE, a U.S. offshore wind industry that takes advantage 

of this abundant domestic resource could support up to 200,000 manufacturing, construction, operation and supply chain jobs across the country and drive over $70 billion in annual investments by 2030. Offshore wind represents an economic and energy opportunity that could mirror, and even surpass, the success of land-based 

wind development. If the U.S. develops even 10 percent of this clean energy resource 

for one year, we would produce about 25 times more energy than we would if we 

developed all of the oil and gas in the transboundary area, and unlike oil, offshore 

wind will continue to produce clean energy year after year after year. 

WE MUST MAKE A SWIFT TRANSITION FROM FOSSIL FUELS TO CLEAN ENERGY 

Our continued emphasis on expanding drilling is preventing us from the needed 

investment in clean energy that would stimulate the economy without the risks associated with drilling and would also help to alleviate the worst impacts of climate 

change. As I said earlier, in order to combat global climate change, we need to focus 

on transitioning off of fossil fuels in favor of clean, renewable energy development. 

Offshore wind can be a big part of this transition, though as with all burgeoning 

industries, one of the biggest impediments to this clean energy development is financing. In order for a domestic offshore wind industry to get up and running, a 

long-term extension of the Investment Tax Credit (ITC) is needed. To that end, Senators Tom Carper and Susan Collins have introduced S.401, the Incentivizing Offshore Wind Power Act, bipartisan legislation that will extend the ITC to the first 

3,000 MW of offshore wind installed. This extension will provide much-needed certainty to investors, which will make offshore wind an affordable, viable investment 

and will ultimately help to catapult this burgeoning industry into the mainstream. 

This is the type of legislation that can help solve our energy and environmental 

challenges, without risking lives and livelihoods, as well as marine ecosystems. A 

focus on promoting clean energy could get us all the benefits of the Agreement and 

more, without the risks. 

THE AGREEMENT FAILS TO ADDRESS ENVIRONMENTAL CONCERNS 

The Agreement fails to adequately address the safety risks of drilling and is effectively silent on environmental protection. As such, this agreement provides little to 

no additional benefit to the U.S., especially compared to what we could be getting 

from clean energy. In a recent Congressional Research Service (CRS) report done 

on this topic, entitled, ‘‘Proposed U.S.-Mexico Transboundary Hydrocarbons Agreement: Background and Issues for Congress,’’ BOEM estimates that there are 172 

million barrels of oil and 304 billion cubic feet of natural gas in the transboundary 

area. As this is the total amount of oil and gas in the transboundary area, the U.S. 

would only be entitled to half. According to the EIA, the U.S. consumed 18.83 million barrels of oil per day in 2011 and consumed 25.46 trillion cubic feet of natural 

gas per day in 2012. Therefore, at maximum extraction and assuming the U.S. and 

27 

Mexico split these reserves evenly, the oil that the U.S. would get as a result of this 

agreement would supply only about 4 ° days of our total oil demands and the natural gas that the U.S. would get would supply only about 2 days of our natural gas 

demands. Additionally, the same CRS report states that the U.S. would only bring 

in $50 million from energy activities projected to take place in the transboundary 

area, as compared to $6.9 billion in revenue the U.S. got from offshore energy production in 2012 alone. To put this in perspective, this paltry sum would represent 

less than 1 percent (0.72 percent, to be exact) of the total offshore revenues of the 

U.S. 

Lastly, there seems to be little to no thought put into what kind of environmental 

protections would be required in the transboundary area. For instance, both 

H.R.1613 and S.812 are silent on environmental protections for the area and the 

Agreement merely suggests protections ‘‘where appropriate’’ or ‘‘where necessary,’’ 

which provides absolutely no mandate and is totally open to interpretation. Expanding the risky and dangerous practice of offshore drilling to an area where no 

thought or consideration is given to environmental protections is a recipe for disaster. It is unacceptable to move forward with such an endeavor when even the 

safety regulations we currently have in place would not adequately prevent another 

Deepwater Horizon oil spill disaster. 

CONCLUSION 

Oceana opposes implementation of the Agreement because: (1) we do not believe 

that drilling operations should be expanded; (2) the continued emphasis on expanded offshore drilling is slowing the necessary investment in clean energy projects 

that would stimulate the economy and help to alleviate the worst impacts of climate 

change; and (3) the Agreement fails to satisfy a basic risk/benefit analysis, as it 

brings a tremendous amount of risk of devastating spills and climate impacting results, with relatively little concomitant benefit. 

The risks of the expanded drilling called for in the Agreement far outweigh the 

rewards. Rather than opening this area to new and expanded oil and gas production, we believe that the moratorium on drilling in the transboundary area should 

be extended, and that the U.S. should invest further in stimulating the development 

of offshore wind and other clean energy opportunities. 

Thank you for your time. I’m happy to answer any questions you may have. 

The CHAIRMAN. Very good. Thank you. 

Mr. Milito. 

STATEMENT OF ERIK MILITO, GROUP DIRECTOR, UPSTREAM 

AND INDUSTRY OPERATIONS, AMERICAN PETROLEUM INSTITUTE 

Mr. MILITO. Good morning, Chairman Wyden, Senator Murkowski. I’m Erik Milito, Upstream Director of the American Petroleum Institute. Thank you for the opportunity to appear today for 

you as a witness. 

API has more than 500 member companies which represent all 

sectors of America’s oil and natural industry. Our industry supports 9.8 million American jobs and 8 percent of the U.S. economy. 

The industry also provides most of the energy we need to power 

our economy and way of life and delivers more than $85 million a 

day in revenue to the Federal Government. 

Our Nation can and should be producing more of the oil and natural gas Americans need here at home. This would strengthen our 

energy security and help put downward pressure on prices while 

also providing many thousands of new jobs for Americans and billions of dollars in additional revenue for our government. 

According to Energy Information Administration statistics we 

produced a little more than 5 million barrels of oil a day in 2009 

and are projected to produce nearly 9 million barrels a day by the 

end of 2014. We are simultaneously reducing the amount of oil that 

we import. But we can and should do more. 

28 

The Gulf of Mexico oil and gas development supports approximately 400 thousand jobs throughout the U.S. economy with onefourth of those jobs in States outside the Gulf region. I’d like to 

point out that a recent study that Quest Offshore Drilling conducted shows that these jobs that support the Gulf reach all 

through the country. There are companies. There are vendors in 

Oregon and places as far as Alaska when it comes to supporting 

Gulf production. So it’s significant that it’s not just Gulf States that 

benefit. 

The Transboundary Hydrocarbon Agreement with Mexico is important as it could help create additional revenue opportunities for 

U.S. oil and natural gas companies in the Gulf of Mexico. In turn 

create more jobs and enhance our energy security. The Agreement 

establishes a cooperative process for managing oil and gas reservoirs along the boundary region in the Gulf of Mexico and encourages cooperative agreements with U.S. independent oil companies and Mexico’s State owned oil company to jointly develop energy resources along the boundary areas. 

Importantly this agreement will provide legal certainty to U.S. 

companies which will encourage them to invest in new energy development creating jobs and spurring economic growth. 

Implementing legislation authorizing this important agreement 

should be approved as quickly as possible. S. 812 takes that pivotal 

step. Swift implementation of the Transboundary Hydrocarbon 

Agreement is important to providing regulatory certainty and will 

allow companies to make investments in these boundary areas with 

the knowledge that there is a framework in place to allow for orderly extraction of these resources. 

Given that industry investments in the offshore are largely limited to the Gulf of Mexico, this will serve to enhance our Nation’s 

energy security and long term economic growth and highlight the 

importance of national leadership in promoting a positive forward 

looking energy policy. 

The last thing I’d like to add is that the oil and natural gas industry is comprised of energy companies, that our focus is on oil 

and natural gas. That’s what they’re good at. That’s what they’ve 

been doing for this country for a long time. 

From 2012—from 2007 to 2012 according to EIA the extraction 

side, the exploration and production side actually increased jobs by 

40 percent. So it’s a significant driver of employment here in this 

country. 

But I would add to that that they are energy companies. A recent 

study by T2 and Associates found that from 2000 to 2012 the oil 

and gas industry invested approximately $81 billion into GHG 

mitigating technologies. Whereas other industries combined invested an estimated $91 million—$91 billion and the Federal Government invested an estimated $79 billion. 

In that same timeframe the oil and natural gas industry was responsible for approximately 17 percent or $11.4 billion of all investments in non hydrocarbon resources including wind, solar, geothermal and biomass technologies. So these are energy companies. 

These are companies that have done a great job of finding oil and 

gas resources so that we have them here in the United States and 

we can drive economic recovery and economic growth but at the 

29 

same time I don’t think you can ignore the fact that the energy 

companies have been doing their fair share to try to drive investment in non hydrocarbon resources. Just want to put that out 

there. 

Appreciate the opportunity once again to appear before you and 

be able to provide my testimony. I’m happy to answer any questions. 

[The prepared statement of Mr. Milito follows:] 

PREPARED STATEMENT OF ERIK MILITO, GROUP DIRECTOR, UPSTREAM AND INDUSTRY

OPERATIONS, AMERICAN PETROLEUM INSTITUTE

Good morning Chairman Wyden, Senator Murkowski, and members of the committee. I am Erik Milito, Upstream Director at the American Petroleum Institute. 

API has more than 500 member companies, which represent all sectors of America’s oil and natural gas industry. Our industry supports 9.8 million American jobs 

and 8.0 percent of the U.S. economy. The industry also provides most of the energy 

we need to power our economy and way of life and delivers more than $85 million 

a day in revenue to the federal government. 

Our nation can and should be producing more of the oil and natural gas Americans need here at home. This would strengthen our energy security and help put 

downward pressure on prices while also providing many thousands of new jobs for 

Americans and billions of dollars in additional revenue for our government. According to Energy Information Administration statistics, we produced a little more than 

5 million barrels of oil a day in 2009 and are projected to produce nearly 9 million 

barrels a day by the end of 2014. We are simultaneously reducing the amount of 

oil that we import. But we can and should do more. 

Gulf of Mexico oil and gas development supports approximately 400,000 jobs 

throughout the U.S. economy, with one-fourth of those jobs in states outside the 

Gulf region. The Transboundary Hydrocarbon Agreement with Mexico is important 

as it could help create additional resource opportunities for U.S. oil and natural gas 

companies in the Gulf of Mexico and in turn create more jobs and enhance our energy security. The agreement establishes a cooperative process for managing oil and 

gas reservoirs along the boundary region in the Gulf of Mexico and encourages cooperative agreements between U.S. independent oil companies (IOCs) and Mexico’s 

state-owned oil company (Pemex) to jointly develop energy resources along boundary 

areas in the Gulf of Mexico. Importantly, this agreement will provide legal certainty 

to U.S. companies, which will encourage them to invest in new energy development, 

creating jobs and spurring economic growth. 

The importance of this agreement is magnified by the fact that the administration 

has chosen a status quo approach to offshore oil and natural gas development that 

restricts oil and gas development to portions of the Gulf of Mexico and Alaska and 

leaves approximately 87 percent of Outer Continental Shelf areas off limits. We continue to hear about an ‘‘all-of-the above’’ energy approach and the administration’s 

projections show that oil and natural gas will supply most of the nation’s energy 

for decades to come. However, we need to see real action in order to ensure that 

we are effectively meeting the nation’s need for continued oil and gas resources to 

fuel our economy. Approval of the U.S.—Mexico Transboundary Agreement is one 

way that we can create and encourage additional opportunities for safe and environmentally responsible domestic energy production on federal land. 

Implementing legislation authorizing this important agreement should be approved as quickly as possible, and S. 812 takes that pivotal step. Swift implementation of the Transboundary Hydrocarbon Agreement is important to providing regulatory certainty and will allow companies to make investments in these boundary 

areas with the knowledge that there is a framework in place to allow for orderly 

extraction of these resources. Given that industry investments in the offshore are 

largely limited to the Gulf of Mexico, this will serve to enhance our nation’s energy 

security and long-term economic growth and highlight the importance of national 

leadership in promoting a positive, forward-looking energy policy. 

Thank you again to the Chairman and the Committee and I look forward to your 

questions. 

The CHAIRMAN. Thank you both. Very helpful. 

30 

Let me begin with you, if I could, Ms. Savitz. As you know we’ve 

worked with your organization many times. I have enormous respect for Mr. Danzig, who we worked with you on over fishing. 

Certainly when you talk about climate change you’ve got me at 

hello. I mean this 400 parts per million finding recently—that 

ought to be a wakeup call to everybody. 

So we’re going to be focused very specifically on ways to promote 

a lower carbon economy. There are a whole host of ways to do it. 

The question that I really have is how is having no agreement 

better than having an agreement/ Let me kind of be specific about 

this. 

My understanding is without an agreement Mexico can proceed 

on their own. Should they do it and they’re talking about changing 

their Constitution and the like. You could have, you know, ultra 

deep drilling and you could have a whole host of areas that 

wouldn’t be subject to the kind of government standards we’re talking about here in terms of safety and environmental protection, so 

fewer platforms, that sort of thing. 

Tell me your view about why no agreement is in effect better 

than this agreement. 

Ms. SAVITZ. Thank you, sir. Let me start by saying thank you 

back to you. Likewise we’ve enjoyed very much working with you 

and with the Ranking Member on a variety of different issues. 

We’ll continue to do so. 

Thank you for your sentiments on climate change. It’s a huge 

problem for the oceans. It’s leading to ocean acidification. Scientists 

are predicting that by mid century we’ll start to see mass 

extinctions of coral reefs around the world. Mid century, really, unfortunately, is not that far away which is why we’ve been pushing 

so hard to try to get a shift in the way we think about energy and 

shifting away from fossil fuels and toward clean energy which provides us a solution to those problems. 

From our perspective the best case scenario in the U.S./Mexico 

Agreement would be for the United States to lead Mexico in that 

direction rather than facilitating or enabling the development of 

this area by both the United States and Mexico. I think there’s 

some questions about what, you know, what Mexico will do in the 

absence of the agreement. But it’s also not clear that Mexico will 

develop this area and that we couldn’t be facilitating that development without necessarily opening up additional areas to offshore 

drilling. 

The CHAIRMAN. Alright. 

One question for you, if I might, Mr. Milito. 

Part of the reason there’s been a moratorium in the Western Gap 

has been due to concern of drainage of resources from one side of 

the transboundary from the other. This concern, of course, is dealt 

with in the agreement by the implementation of unitization agreements. Senator Murkowski has already referred to them. 

These are agreements among lessees to develop a common reservoir and allocate production jointly. Are you satisfied that this 

provision deals adequately with this issue? Again, what are the 

consequences if there’s no agreement? 

Mr. MILITO. Yes, we are. In the way it works out currently for 

even U.S. producers in the Gulf of Mexico is that if you have a resVerDate Nov 24 2008 15:12 Jan 08, 2014 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6602 G:\DOCS\85407.TXT WANDA
31 

ervoir that crosses leases companies have to enter and normally do 

enter into unitization agreements so that there is an agreement in 

place to ensure that production is being allocated and that the reservoir is being managed according to an underlying agreement. 

So that history in practice is there. Then when going forward to 

develop the cross boundary reservoirs that overlap between the 

U.S. and Mexico boundary, we now have the certainty in place to 

allow companies to do a similar, enter into similar agreements, 

when it comes to dealing with PEMEX and making sure that there 

is the certainty in place from a legal standpoint to move forward 

and have that production allocated and have those royalties and 

revenues divided up as outlined in the underlying unitization 

agreements. 

So that certainty is provided through this Transboundary Agreement. 

The CHAIRMAN. Very good. 

Senator Murkowski. 

Senator MURKOWSKI. Thank you, Mr. Chairman. 

To both of you, thank you for your testimony here this morning. 

Appreciate it. 

Ms. Savitz, you, in answer to the chairman’s question, you’ve indicated that the concern is a bigger picture just trying to move 

away from fossil fuel. I think he tried to indicate that if this agreement does move forward what we do is we set in place a framework 

for joint development, making sure that that footprint is smaller, 

promoting common safety, environmental standards. 

Is there anything that you can think of that would, I guess, enhance the terms of the agreement so that Oceana would actually 

support this agreement or are you opposed under all circumstances? I guess I’m trying to understand if there are areas 

that could be enhanced that would cause you to revisit this? 

Ms. SAVITZ. Thank you for that question. I think it’s a very 

thoughtful question. 

One of the big concerns we have with the agreement is it’s very 

unclear to us from the agreement where the, you know, what safety 

standards would be required for offshore drilling of Mexico. We 

kind of know what safety standards are required in the United 

States. It’s not clear to us that our safety standards necessarily 

would be recognized and respected or that we would have any authority to guarantee them. 

But in addition to that we’re also very concerned with the status 

of the existing safety requirements for offshore drilling. 

We don’t think they’re sufficient. 

They don’t require sufficient technology. 

There’s a serious lack of funding for inspections. 

They’re very low penalties that even former head of BOEMRE, 

Michael Bromwich, you know, was very concerned about the low 

penalties. So essentially what we get is even though we have some 

standards they’re not necessarily being met and that the standards 

aren’t strong enough. 

We have a liability cap in place. It hasn’t been lifted since Deepwater Horizon. So there’s a variety of things that a, we’re not sure 

that the Mexican drilling company would recognize our standards. 

32 

Even if they did we’re not satisfied with the strength of our standards. 

Senator MURKOWSKI. Let me ask you, Mr. Milito, whether or not 

your members, the folks that are affiliated or associated with API 

are currently working with Mexico on oil and gas safety technology, 

environmental issues. Do you have a level of collaboration that is 

ongoing related to oil and gas development in the Gulf right now? 

Mr. MILITO. Thank you, Senator. That’s an interesting question 

considering that just a few weeks ago we had hosted a delegation 

of Senators from Mexico who came to API to learn about what 

we’re doing here in the United States. So we took that opportunity 

in conjunction with that State Department, being able to line that 

meeting up to kind of go through what we were doing as an industry here in the United States and outlining a lot of the work we’ve 

done in terms of raising and enhancing the level of performance in 

offshore operations in terms of preventing an accident, containing 

one and responding to one. 

It appeared very clear from that discussion that there is a strong 

desire from the Mexican government to be able to move forward 

and get its production increased back up. But it’s important to 

make sure that we’re doing it in a safe and environmentally responsible way. 

Our industry also has been working closely with BSEE and 

BOEM and then also speaking before forums like the International 

Regulators Forum to make sure that we are disseminating and 

spreading the information about robust regulatory frameworks and 

high level standards that should be employed throughout the 

world. Our companies on a one on one basis also work with Mexico 

and Mexican authorities to make sure that all this information and 

the technologies and standards are being communicated across borders. 

So I think we’re doing what we can. I think a lot of that is also 

being handled through both the BOEM, BSEE and the State Department. 

Thank you. 

Senator MURKOWSKI. You know, you can’t help but think about 

or I can’t help but think coming from Alaska that when we talk 

about development in our oceans it—the issues are different. When 

you’re on land and you know where your State boundaries are it’s 

just a little bit different dynamic. What we’re trying to do up North 

in a very evolving part of the world, is a recognition that in the 

Arctic Nations there is greater efforts of collaboration whether it is 

with environmental issues, whether it’s in search and rescue, 

whether it is oil spill prevention and just the whole preparedness. 

But it’s one thing when it’s the U.S. talking to our neighbors just 

to the south in Mexico. It’s another thing when you’ve got multiple 

countries that you are dealing with where standards might be a little bit different. 

So appreciate your response to that. 

Can you speak and this is to you, Mr. Milito again, to the level 

of interest within the membership of API in developing these oil 

and gas resources that are along the transboundary area? Mr. 

Beaudreau mentioned that there have been applicants or perspective lease holders that have stepped forward but his suggestion was 

33 

that once this uncertainty is resolved or excuse me, once this moratorium is resolved that there will be a greater interest in activity 

in that area. 

Can you speak to that? 

Mr. MILITO. Yes. That’s our understanding as well is that given 

the inability to move forward with legal certainty that companies 

No. 1, have not been able to move forward and apply for permits 

and actually go out there and engage in initial exploratory activities. But, you know, they haven’t been able to also put forward a 

strong forward looking program to tap into these opportunities 

from a broader standpoint. 

I do think that when you look at the map which shows you 

where the lease blocks are, you will see a production platform like 

Perdido which has capacity for 100 thousand barrels a day. Not far 

from this area and you see selectively companies who have bid on 

and purchases leases right along that border that there is interest 

there. Not given that we’re a trade association and this is a lot of 

confidential business information. We’re not privy to a lot of that 

information. 

But it’s clear that the industry as a whole would like to look at 

these perspective areas and determine what’s there and whether 

there are opportunities to then move into the production stage. So 

it’s step by step by step, but given that the Gulf of Mexico is a very 

mature area it’s areas like this that would allow this Nation to enhance its own energy security. 

Senator MURKOWSKI. Appreciate it. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Murkowski. 

You know, what I’m struck by particularly as we wrap up, and 

I know we were very pleased to get the helium legislation passed 

last week because there would have been real consequences, essentially starting this week, in terms of millions of jobs being affected, 

700,000 MRIs each week that need that liquid helium to be able 

to cool those super conducting magnets. Back when everybody 

started talking about helium I think I mentioned to you I thought 

that helium was about balloons. 

We really under—we’ve learned a lot. Thank you for your cooperation. I think we’ve got to bring the same kind of urgency to 

this agreement as well. 

What I’m struck by is January 17th, basically means that the 

moratorium expires. It’s kind of first come, first serve. It’s open 

season. 

As I was really touching on with you, Ms. Savitz, and this is recognizing all the good work that you all do at your organization, if 

the moratorium expires and first come, first serve and we don’t 

have the rules that strike that kind of responsible approach we’ve 

been talking about here today, basically you can go your own way 

with respect to drilling in the Western Gap. 

I think that’s something we want to avoid. So I intend to work 

very closely with you and our committee. I think we got on the 

record what we needed to today. 

I particularly wanted to close and let you all at least have the 

last word. But January 17th is coming up here. To in effect say, 

alright, we’re not going to act. It’s going to be open season there. 

34 

First come, first serve. That would not be in the interest of the 

American people. 

So last word from my friend, Senator Murkowski. 

Senator MURKOWSKI. I like having the last word. What I will remind our colleagues is that once again while things seem to be 

stalled out in other parts of this building, as a committee, we’re 

trying to move through some good stuff. Last week while all eyes 

were focused upon a few key individuals and quite honestly we 

weren’t getting a lot of governing done, you and I and our very able 

staffs worked with our colleagues on the House side to move 

through the Helium bill. 

There wasn’t front page news that I could find about it and that 

was just fine because, quite honestly, we got an important provision moved through both bodies and around the road blocks and to 

the President for his signature. We’re just kind of quietly doing our 

work here. I think with the frustration that the public feels right 

now about what is happening in the Congress or perhaps the lack 

of anything happening in the Congress right now as they see their 

government shutting down. 

I think it’s important to know that on this first morning of the 

government shut down we’re talking about how we, as a Nation, 

move forward toward energy independence, North American energy 

independence, energy security, working to make sure that we’ve got 

environmental frameworks in place, safety frameworks in place. I 

just appreciate the fact that we’re continuing to do what I think 

people sent us to do which is get to work. 

So I appreciate your leadership here this morning. Appreciate 

those of you that took the time to be with us and to speak up on 

what I think is a pretty important issue for our country. 

So, thank you. 

[Whereupon, at 11:10 a.m., the hearing was adjourned.] 

(35) 

APPENDIX 

RESPONSES TO ADDITIONAL QUESTIONS

RESPONSES OF CARLOS PASCUAL TO QUESTIONS FROM SENATOR JOHNSON

Question 1. I am a strong supporter of section 1504 of the Dodd-Frank legislation 

requiring expanded transparency for extractive industries, and oppose the House attempt to incorporate an exemption into legislation on this agreement. In your view, 

is the agreement, as it was negotiated, implementable—where U.S. companies can 

participate in these transboundary projects—without undermining Section 1504, as 

the provision in H.R. 1613 has sought to do? 

Answer. The Department of State strongly supports Dodd-Frank Section 1504, 

which set an important new standard for transparency in the extractive industries. 

As I noted in my testimony, we look forward to working with the Congress to enact 

implementing legislation that would focus on the U.S.-Mexico Transboundary Agreement, without the inclusion of extraneous and unnecessary provisions such as those 

relating to Dodd-Frank Section 1504. Such inclusions would directly and negatively 

affect U.S. efforts to increase transparency and accountability. The provisions are 

unnecessary and unrelated to implementing the U.S.-Mexico Transboundary Hydrocarbon Agreement and seriously detract from the bill. 

Question 2. The Mexican government has indicated its intent to implement the 

Extractive Industries Transparency Initiative (EITI) and is a founding member of 

the Open Government Partnership with the United States. Has the State Department or the U.S. Embassy in Mexico received any indication that the Mexican government is preparing legislation to prevent disclosure in transboundary waters? 

Answer. We are not aware of any plans by the Government of Mexico to introduce 

legislation preventing disclosure of payments for commercial development of oil, gas, 

or minerals in transboundary waters. We welcome the Government of Mexico’s 

strong engagement on the Open Government Partnership (OGP) and we look forward to their implementation of the EITI. The United States also strongly supports 

the EITI by participating actively on its international governing board, funding 

technical assistance, and promoting the initiative in bilateral discussions as well as 

multilateral groups such as the G8 and G20. The State Department collaborates 

closely with colleagues at the U.S. Department of the Interior as they work with 

civil society, industry, and Federal and state government representatives toward implementing the EITI domestically in the United States, which is one of our commitments in the U.S. Open Government Partnership National Action Plan. 

RESPONSE OF CARLOS PASCUAL TO QUESTION FROM SENATOR SCHATZ

Question 1. Ambassador Pascual, I wonder if you could discuss the benefits of reporting requirements under Section 1504 of the Dodd-Frank Act, the initiatives in 

place at the State Department, and how the exemption in the House bill would affect your agency’s efforts at achieving transparency. 

Answer. The U.S. Department of State strongly supports Dodd-Frank Section 

1504, which sets an important new standard for transparency in the extractive industries. As I noted in my testimony, we look forward to working with the Congress 

to enact implementing legislation that would focus on the U.S.-Mexico 

Transboundary Agreement, without the inclusion of extraneous provisions such as 

those relating to Dodd-Frank Section 1504. Not only are the provisions unnecessary 

and unrelated to implementing the U.S.-Mexico Transboundary Hydrocarbon Agreement; they would directly and negatively affect U.S. efforts to increase transparency 

and accountability in the extractives sector globally. Dodd-Frank Section 1504 set 

a new global standard for revenue transparency, one that is being emulated by others. Since the provision’s passage into law in the United States, the European Union 

adopted similar rules and Canada is working actively to do so. This year, the G8 Leaders encouraged other countries that host major multinational or state-owned 

36 

enterprises that invest abroad to implement equivalent mandatory reporting rules. 

The addition of exemptions to Dodd-Frank Section 1504 as in H.R. 1613 would undermine United States and international efforts to arrive at clear and consistent reporting requirements across jurisdictions that would minimize duplicate reporting 

burdens, and ensure this reporting is complete. 

The extractive sectors are notoriously difficult for countries to manage effectively 

and transparently. While these resources are key to the global economy and can be 

a tremendous asset for a country’s economic growth, too often countries have been 

unable to manage the development of these resources effectively, with the result 

that the returns on this wealth are not leveraged into sustained economic growth. 

The Department supports transparency in the payments that extractive companies 

make to governments as a key component of a broader strategy to support effective 

and accountable government management of the extractive sectors. The company reporting requirements contained in Dodd-Frank Section 1504 complement voluntary 

initiatives like the Extractive Industries Transparency Initiative (EITI) by giving 

people in countries around the world the information they need to hold their own 

governments accountable. 

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